(Expected rate of return and risk) B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 4.3 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security? Probability Return 0.05 −4 % 0.50 1 % 0.40 7 % 0.05 8 % (Click on the icon in order to copy its contents into a spreadsheet.)
(Expected
4.3 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security?
|
Probability |
Return |
|
|
0.05 |
−4 |
% |
|
0.50 |
1 |
% |
|
0.40 |
7 |
% |
|
0.05 |
8 |
% |
(Click on the icon in order to copy its contents into a spreadsheet.)
Question content area bottom
Part 1
a. The investment's expected return is
enter your response here
%. (Round to two decimal places.)
Part 2
b. The investment's standard deviation is
enter your response here
%. (Round to two decimal places.)
Part 3
c. Should Gautney invest in this security? (Select the best choice below.)
A.
No. B. J. Gautney Enterprises should not invest in this investment because the return is lower than the Treasury bill and the level of risk higher than the Treasury bill.
B.
Yes. B. J. Gautney Enterprises should invest in this investment because the return is lower than the Treasury bill and the level of risk higher than the Treasury bill.
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