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
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.
| OUTCOME: | Probability | Return |
|---|---|---|
| BAD | 0.30 | -18.00% |
| AVERAGE | 0.47 | 6.00% |
| GREAT | 0.23 | 35.00% |
Find the expected return based on his assumptions.
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Mathematical Finance Core Theory Problems And Statistical Algorithms
Authors: Nikolai Dokuchaev
1st Edition
0415414482, 978-0415414487
