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14 June, 14:14

A fruit company has 20% returns in periods of normal rainfall and - 3% returns in droughts. The probability of normal rainfall is 60% and droughts 40%. What would the fruit company's expected returns be?

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  1. 14 June, 17:47
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    10.8%

    Explanation:

    The computation of the expected returns is shown below:

    = Return in periods of normal rainfall * probability of normal rainfall + return in droughts * probability of droughts

    = 20% * 60% + - 3% * 40%

    = 12% - 1.2%

    = 10.8%

    Basically we multiplied the returns with its probabilities so that the approximate expected rate of return could come.
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