An investment portfolio has a 20% chance of earning $125,000 in a year, a 50% chance of earning $50,000, a 15% chance of earning nothing and 15% chance of losing $20,000

Finance Sep 12, 2020

An investment portfolio has a 20% chance of earning $125,000 in a year, a 50% chance of earning $50,000, a 15% chance of earning nothing and 15% chance of losing $20,000. What is its expected return?

Expert Solution

Computation of the expected return:-

Expected return = (20% * $125,000) + (50% * $50,000) + (15% * 0) + (15% * -$20,000)

= $25,000 + $25,000 + $0 - $3,000

= $47,000

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