Question

1. We have the following discrete distribution for an asset i's return for the next period: Probability Market Rate Scenario Best Case Most Likely Worst Case of Scena rio of Return 0.2 0.6 0.2 0.20 0.05 0.10 a) Find the expected return, variance, and standard deviation for the asset. Write out all the setups for each calculation b) Based on your calculation, draw figure 2-4 on page 44 and interpret what calculated ± 16, ± 26, and ± 3σ deviations mean. Show all the calculation steps.

Answer 1