Question

in the profitability analysis, what technique is used to calculate the expected return? a. calculate the...

in the profitability analysis, what technique is used to calculate the expected return?

a. calculate the weighted mean of all the possible outcomes

b. identify the outcome that is most likely to occur

c. calculate the mean of the various possible outcomes

d weight each of the possible outcome by the profitability of occurrence , and then calculate the arithmetic average of the weighted outcomes.

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Answer #1

Ans is D. As Expected return of portfolio is calculated by taking average i.e. arthmetic mean of (Expected return of each stock multiplied by their respective weight) .

A is incorrect bec probability of occurence is not mentioned.

B is incorrect bec it is written to identify the outcomes and not mentioned to take out weighted avg Expected return.

C is incorrect bec they have mentioned various possible outcomes . We cannot take weighted avg of Expected return of large number of outcomes . So we take only possible outcomes.

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