Expected Returns for Companies K and L

he shares of two companies, K and L have the following expected returns: Prob Return K Return L 0.3 20% 6% 0.5 15% 10% 0.2 5% 12%

Question 1: The expected returns are: Question 1Select one: a. K 15% L 10% b. K 14.5% L 9.2% c. K 13.3% L 9.3% d. K 12% L 8%

To calculate the expected returns for companies K and L, we can use the formula for expected return, which is the sum of the products of each possible return and its probability.

For Company K:

[ \text{Expected Return}_K = (0.3 \times 20%) + (0.5 \times 15%) + (0.2 \times 5%) ] [ = (0.3 \times 0.20) + (0.5 \times 0.15) + (0.2 \times 0.05) ] [ = 0.06 + 0.075 + 0.01 ] [ = 0.145 \text{ or } 14.5% ]

For Company L:

[ \text{Expected Return}_L = (0.3 \times 6%) + (0.5 \times 10%) + (0.2 \times 12%) ] [ = (0.3 \times 0.06) + (0.5 \times 0.10) + (0.2 \times 0.12) ] [ = 0.018 + 0.05 + 0.024 ] [ = 0.092 \text{ or } 9.2% ]

Conclusion:

The expected returns are:

• K: 14.5%
• L: 9.2%

Thus, the correct answer is: b. K 14.5% L 9.2%