An investor is trying to estimate his expected return on an investment in the ne

Question

An investor is trying to estimate his expected return on an investment in the next 12 months. He believes the economy will be one of three states: Bad, Average, or Great. He has estimated the probability of each state and the return he will get in each environment.

Find the expected return based on his assumptions.

Answer Format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

Explanation / Answer

Expected return=Respective returns*Respective probabilities

=(0.34*-16)+(0.44*6)+(0.22*32)

=4.24%

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