Expected return=Respective return*Respective probability
=(0.1*-45)+(0.2*-8)+(0.4*8)+(0.2*30)+(0.1*60)
=9.1%
probability | Return | probability*(Return-Expected Return)^2 |
0.1 | -45 | 0.1*(-45-9.1)^2=292.681 |
0.2 | -8 | 0.2*(-8-9.1)^2=58.482 |
0.4 | 8 | 0.4*(8-9.1)^2=0.484 |
0.2 | 30 | 0.2*(30-9.1)^2=87.362 |
0.1 | 60 | 0.1*(60-9.1)^2=259.081 |
Total=698.09% |
Standard deviation=[Total probability*(Return-Expected Return)^2/Total probability]^(1/2)
=(698.09)^(1/2)
=26.42%(Approx).
Problem 6-5 Expected Return: Discrete Distribution A stock's return has the following distribution: Demand for the...
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