Martell Inc.\'s stock has a 50% chance of producing a 30% return, a 35% chance o

Question

Martell Inc.'s stock has a 50% chance of producing a 30% return, a 35% chance of producing a 9% return, and a 15% chance of producing a -25% return. What is Martell's expected return?
Martell Inc.'s stock has a 50% chance of producing a 30% return, a 35% chance of producing a 9% return, and a 15% chance of producing a -25% return. What is Martell's expected return?
Martell Inc.'s stock has a 50% chance of producing a 30% return, a 35% chance of producing a 9% return, and a 15% chance of producing a -25% return. What is Martell's expected return?

Explanation / Answer

Expected Return:

Expected Return E(R) = p1R1 + p2R2 + .....+ pnRn
Where: pn = the probability the return actually will occur in state n
Rn = the expected return for state n

= ( 0.5* 30 ) + ( 0.35 * 9 ) - (0 .15 * 25 ) = 14.40

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