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?

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.