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The probability of a hot season is 0.2. The probability of a moderately warm
season is 0.6, whereas the probability of a wet and cold season is 0.2. If a hot
season occurs then the return on shares in the Gelato manufacturing
Company will be 30 per cent. If moderately warm the return will be 15 per
cent, and if cold 2 per cent.
What is the expected return? What are the possible limitations for relying on
this data?

Respuesta :

Parrain

Based on the various probabilities given and the returns, the expected return will be 15.4%.

What is expected return?

Expected return is the weighted average of potential returns and their probabilities.

It can be calculated using the formula:

= ∑ (Probability of season x Return if season comes)

What is the expected return on Gelato shares?

Can be found as:

= (0.2 x 30%) + (0.6 x (15%) + (0.2 x 2%)

= 15.4%

In conclusion, the expected return is 15.4%. One limitation of using this method however, is that the returns and probabilities are based on historical data and these conditions might not repeat themselves.

Find out more on expected return at https://brainly.com/question/26061754.

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