Question

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9. Your investment has a 30% chance of earning a 25% rate of return, a 60% chance of earning an 8% rate of return, and a 10% chance of losing 40%. What is the standard deviation of your investment? % Answer: calculations here Show your

Answer 1

expected return=respective return*respective probability

=(0.3*25)+(0.6*8)+(0.1*-40)=8.3%

probability	Return	probability*(Return-Expected Return)^2
0.3	25	0.3*(25-8.3)^2=83.667
0.6	8	0.6*(8-8.3)^2=0.054
0.1	-40	0.1*(-40-8.3)^2=233.289
		Total=317.01%

Standard deviation=[Total probability*(Return-Expected Return)^2/Total probability]^(1/2)

=[317.01]^(1/2)

=17.80%(Approx).