Question

Serena’s Skincare sells Sunscreen in Orlando, Florida. The annual return for the company is affected by the average temperature of the year. When the weather is cold (25% of the year), normal (40% of the year) and hot (35% of the year), its return is expected to be -10%, 5%, and 13% respectively. What is the expected return? Round to the nearest hundredth percent. Answer in the percent format. Do not include % sign in your answer (i.e. If your answer is 4.33%, type 4.33 without a % sign at the end.)

Answer 1

Given about Serena's skincare sunscreen's sells,

probability of cold weather p1 = 25%

expected return when weather is cold r1 = -10%

probability of normal weather p2 = 40%

expected return when weather is normal r2 = 5%

probability of hot weather p3 = 35%

expected return when weather is hot r3 = 13%

So, expected return is weighted average return, where weights is probability here.

So, expected return = p1*r1 + p2*r2 + p3*r3 = 0.25*(-10) + 0.4*5 + 0.35*13 = 4.05%

So, its expected return is 4.05%