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Impact of Probability Shifts on Expected Return
An asset has three possible outcomes for its annual return: a 20% gain, a 5% gain, or a 10% loss. Initially, an analyst assigns an equal probability to each outcome. How would the asset's anticipated average return change if the analyst revises their forecast, increasing the likelihood of the 20% gain while decreasing the likelihood of the 10% loss, keeping the probability of the 5% gain unchanged? Explain your reasoning without performing the exact calculations.
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Impact of Probability Shifts on Expected Return
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