Question

Rand Corporation has a 0.3 probability of a return of -0.2, a 0.1 probability of a rate of return of 0.05, and the remaining probability of a 0.62 rate of return. What is the expected rate of return of Rand Corporation?

Answer 1

Expected Return:
Case	Probability	Return	Expected return = Prob*Return
1	0.3	-0.2	-0.06
2	0.1	0.05	0.005
3	0.6	0.62	0.372
	Expected return		0.317
Thus,
Expected return = 31.7%