This is the return with the highest probability of occurring, but it is not the expected return. The expected return is a weighted average of all the possible returns.
This is the average of the various returns, but it is not the expected return. The expected return is a weighted average of all of the possible returns.
The expected return is a weighted average of the possible returns, with the probabilities used as the weighting. Therefore, the expected return is (.04 * .05) + (.07 * .25) + (.09 * .45) + (.15 * .20) + (.20 * .05) = .10 or 10%.
This is the most probable return multiplied by its probability, but it is not the expected return. The expected return is a weighted average of all of the possible returns.
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What is the expected return?
