To calculate the expected rate of return for Portfolio A, we will use the formula for expected return, which is the weighted average of the returns based on their respective probabilities. The formula is:

$\text{Expected Return} = \sum (\text{Probability} \times \text{Return})$

For Portfolio A, we have the following dataTo calculate the expected rate of return for Portfolio A, we will use the formula for expected return, which is the weighted average of the returns based on their respective probabilities. The formula is:

$\text{Expected Return} = \sum (\text{Probability} \times \text{Return})$

For Portfolio A, we have the following

• Probability 1: $0.22$, Return: $-4\%$
• Probability 2: $0.46$, Return: $20\%$
• Probability 3: $0.32$, Return: $23\%$

Step 1: Calculate each term

1. $0.22 \times -4 = -0.88$
2. $0.46 \times 20 = 9.20$
3. $0.32 \times 23 = 7.36$

Step 2: Sum these values to find the expected return

$\text{Expected Return} = -0.88 + 9.20 + 7.36 = 15.68$

So, the expected rate of return for Portfolio A is approximately 15.68%.

Would you like details on calculating the expected return for Portfolio B or the standard deviation for either portfolio?

Related Questions

1. How do you calculate the expected return for Portfolio B?
2. What is the significance of using four decimal places in financial calculations?
3. How do we calculate the standard deviation of a portfolio's returns?
4. Why is standard deviation considered a measure of risk?
5. What other factors might affect the choice between Portfolio A and Portfolio B?

Tip:

Remember to double-check probabilities add up to 1. This ensures your portfolio analysis is based on a complete distribution.