The promised and expected rates of return

Reference no: EM131098910

A new product may be a dud (20% probability), an average seller (70% probability) or dynamite (10% probability). If it is a dud, the payoff will be $20,000; if it is an average seller, the payoff will be $40,000; if it is dynamite, the payoff will be $80,000. The appropriate expected rate of return is 6% per year. If a loan promises to pay off $40,000, what are the promised and expected rates of return?

Reference no: EM131098910

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