Question

Question 13 Dorothy is considering investing in a company's stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment Probability Boom 25.00% 35,00 0.3 Good Level Slump -5.00% Use the table of returns and probabilities above to determine the expected return on Dorothy's Investment (Round answer to 3 decimal places, e.g. 0.076.) Expected return Use the table of returns and probabilities above to determine the standard deviation of the return on Dorothy's Investment? (Round answer to 5 decimal places, e.. 0.07680.) Standard deviation Click if you would like to show Work for this question: Open Show Work Question Attempts: 0 of 2 used SAVE FOR LATER SAMLET ANSWER

Answer 1

Ans Expected Return = 16.000%

Standard Deviation = 9.16515

Probability (P) RETURN (Y) State of Economy Boom Good Level Slump 4.50 40% 30% 20% 10% 15 10 -5 TOTAL (P*Y) P * (Y-Average Return of Y)^2 10.00 32.40 0.30 2.00 7.20 -0.50 44.10 84.00 16.00 Expected Return = (P*Y) 16.000% VARIANCE = p* (Y-Average Return of Y)^2 84.0000 Standard Deviation = Square root of (P * (Y-Average Return of Y)^2) Square root of 84 9.16515

Where Standard Deviation = Square root of (P * (Y -Average Return of Y)^2)