Donna recently invested in real estate with the intention of selling the property one year from today. She has modeled the returns on that investment based on three economic scenarios. She believes that if the economy stays healthy, then her investment will generate a 30 percent return. However, if the economy softens, as predicted, the return will be 10 percent, while the return will be -25 percent if the economy slips into a recession. If the probabilities of the healthy, soft, and recessionary states are 0.4, 0.4, and 0.2, respectively, then what are the expected return and the standard deviation of the return on Donna's investment? (Round answers to 3 decimal places, e.g. 0.125 and round intermediate calculations to 5 decimal places, e.g. 0.07680.)
Donna recently invested in real estate with the intention of selling the property one year from today. She has modeled the returns on that investment based on three economic scenarios. She believes that if the economy stays healthy, then her investment will generate a 30 percent return. However, if the economy softens, as predicted, the return will be 10 percent, while the return will be -25 percent if the economy slips into a recession. If the probabilities of the healthy, soft, and recessionary states are 0.4, 0.4, and 0.2, respectively, then what are the expected return and the standard deviation of the return on Donna's investment? (Round answers to 3 decimal places, e.g. 0.125 and round intermediate calculations to 5 decimal places, e.g. 0.07680.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Donna recently invested in real estate with the intention of selling the property one year from today. She has modeled the returns on
that investment based on three economic scenarios. She believes that if the economy stays healthy, then her investment will generate
a 30 percent return. However, if the economy softens, as predicted, the return will be 10 percent, while the return will be -25 percent if
the economy slips into a recession. If the probabilities of the healthy, soft, and recessionary states are 0.4, 0.4, and 0.2, respectively,
then what are the expected return and the standard deviation of the return on Donna's investment? (Round answers to 3 decimal
places, e.g. 0.125 and round intermediate calculations to 5 decimal places, e.g. 0.07680.)
Expected return
Standard deviation
4
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