There is a 30% chance that the economy will be good and a 70% chance that it will be bad. If the economy is good, your returns will be 20% and if the economy is bad, your returns will be 10%. What is your expected return? A. 17%. B. 15%. C. 13%.
Expected value is the probability weighted average of the possible outcomes of the random variable. The expected return is: ((0.3) × (0.2)) + ((0.7) × (0.1)) = (0.06) + (0.07) = 0.13.
