Question

The expected value for all three years is $70.

Compute the standard deviation for each of the three years. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
  

Answer 1

Final answer

	Standard deviation
Year - 1	13.42
Year - 5	23.24
Year - 10	44.72

Explanation

Year - 1

Let X represents cash flow variables of Year - 1

Dx = Deviation from expected value = X - 70 ( note : expected value is given as 70 )

Dx² = Dx * Dx

P = Probability

X	Dx	Dx2	P	P * Dx2
55	-15	225	0.4	90
70	0	0	0.2	0
85	15	225	0.4	90
		Sum of P * Dx2 =		180
		Standard deviation		13.42

Standard deviation = Square Root of ( 180 ) = 13.42 ........... for Year - 1

Year - 5

X	Dx	Dx2	P	P * Dx2
40	-30	900	0.3	270
70	0	0	0.4	0
100	30	900	0.3	270
		Sum of P * Dx2 =		540
		Standard deviation		23.24

Year - 10

X	Dx	Dx2	P	P * Dx2
20	-50	2500	0.4	1000
70	0	0	0.2	0
120	50	2500	0.4	1000
		Sum of P * Dx2 =		2000
		Standard deviation		44.72