QA quiz 2 q 1: How is the answer D calculated?

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Maya wants to buy TCS. There is a 30% TCS will be acquired in the next two months. If TCS is acquired, there is a 40% probability of earning a 40% return on the investment and a 60% probability of earning 30%.
If TCS is not acquired, the expected return is 14%. What is the expected return on this investment?
Select one:
a. 14%
b. 10.2%
c. 43.8%
d. 20% Correct

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Posted by Paul (Questions: 11, Answers: 0)
Asked on February 15, 2016 2:03 am
Category: FRM Part I
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The expected return should be 0.3*(40%*0.4+30%*0.6)+0.7*14%= 11.2%+9.8%= 20%

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Posted by rajatbatra (Questions: 0, Answers: 5)
Answered on February 20, 2016 8:35 pm
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