If there is a 20% chance we will get a 16% return, a 30% chance of getting a 14% return, a 40% chance of getting a 12% return, and a 10% chance of getting an 8% return.
Question 1: What is the expected rate of return for this investment? (Please round your answer to the fourth decimal. E.g. if your answer is 1.11%, you should input 0.0111.)
Question 2: What is the standard deviation for this investment? (Please round your answer to the fourth decimal. E.g. if your answer is 1.11%, you should input 0.0111.)
Answer 1.
Expected Return = 0.20 * 0.16 + 0.30 * 0.14 + 0.40 * 0.12 + 0.10
* 0.08
Expected Return = 0.13 or 13.00%
Answer 2.
Variance = 0.20 * (0.16 - 0.13)^2 + 0.30 * (0.14 - 0.13)^2 +
0.40 * (0.12 - 0.13)^2 + 0.10 * (0.08 - 0.13)^2
Variance = 0.0005
Standard Deviation = (0.0005)^(1/2)
Standard Deviation = 0.0224 or 2.24%
If there is a 20% chance we will get a 16% return, a 30% chance of...
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