Question

Question 14 1 pts Paulie invested $20,000 in ABC Corp. and $40,000 in DEF Corp. the return percentages of ABC Corp. and DEF Corp. will vary as shown in the information below: ABC Return DEF Return State of Economy Probability of State Boom 35% 15% 7% Good 25% 12% 7% Poor 30% 8% 6% Bust 10% - 10% 6% What is the expected return of Paulie's investment? 6.25% o 7.62% 6.42% 9.65% Question 15 1 pts Same facts as above: what is the standard deviation of Paulie's investment? 4.03% 2.62% 2.68% 0.07%

Answer 1

state of economy deviation ^2x probability weighted return (weight x return) ABC DEF 5% 5% 4% 35% rate of return if state occurs ABC DEF 15% 7% 12% 7% 8% 6% -10% 6% Boom Good Poor Bust 5% deviation (weighted return- deviation^2 expected return) 2.050% 0.042025% 1.050% 0.011025% -0.950% 0.009025% -6.950% 0.483025% weighted sum probability expected return (sum of weighted return) 9.667% 3.38% 8.667% 25% 2.17% 6.667% 30% 2.00% 0.667% 10% 0.07% 7.62% 0.000147088 0.00002756 0.00002708 0.00048303 3% -3% 4% Weight 33.33% 66.67% Variance Standard deviation = variance10.5 0.00068 2.62% a) Expected return = 7.62% Standard deviation = 2.62%