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Calculate the expected return on the investment

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Reference no: EM132829490

Question - You own a well-diversified portfolio. You are considering a small investment in a local start-up founded by a family member.

Your best guess is that the start-up has a 30% chance of succeeding-in which case the return is estimated to be 400%--and a 70% chance of failing, in which case you will lose your entire investment (i.e., the return will be -100%.)

The current risk-free rate is 2% per year, and the expected market risk premium is 6% per year.

Calculate the expected return on the investment.

Reference no: EM132829490

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