An investor faces the following investment scenarios:
Scenario Probability Return -
Bull market 60% 30%
Neutral market 30% 7%
Market crash 10% -25%
The investor's expected rate of return is ________.
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A. B. C. D.B
The expected return equals 0.6 * 30% + 0.3 * 7% + 0.1 * (-25%) = 17.6%.
To calculate the investor's expected rate of return, we need to multiply the probability of each scenario by its corresponding return and sum them up.
Let's calculate the expected rate of return:
Expected rate of return = (Probability of Bull market * Return in Bull market) + (Probability of Neutral market * Return in Neutral market) + (Probability of Market crash * Return in Market crash)
Expected rate of return = (0.60 * 0.30) + (0.30 * 0.07) + (0.10 * -0.25)
Expected rate of return = 0.18 + 0.021 - 0.025
Expected rate of return = 0.176
To convert this to a percentage, we multiply by 100:
Expected rate of return = 0.176 * 100
Expected rate of return = 17.6%
Therefore, the correct answer is B. 17.6%.