Compaq recently adjusted the probabilities for its expected cash flows in light of the Asian currency crisis.It revised the probability of favorable conditions from 32% to 18% and the probability of poor earnings from 7% to 17%.Which of the following is the most likely result from this revision?
A) It would raise expected returns.
B) It would lower expected returns.
C) The probabilities cannot be revised once they have been estimated.
D) It would lower its historical return.
E) It would have no effect on expected returns.

Question

Quizplus · Accepted Answer

As the expected return of a higher return decreases, the expected return decreases.

Compaq Recently Adjusted the Probabilities for Its Expected Cash Flows