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You are looking at an investment with the following outcomes (and probabilities): 2.> 11% chance of a 38% return 24% chance of a 15% return 12% chance ofa 12%return 17% chance ofa 7% return 18% chance ofa 2% return 10% chance ofa-4% return' 8% chance of a -16% return What is the expected return and standard deviation of this investment?|

You are looking at an investment with the following outcomes (and probabilities): 2.> 11% chance of a 38% return 24% chance of a 15% return 12% chance ofa 12%return 17% chance ofa 7% return 18% chance ofa 2% return 10% chance ofa-4% return' 8% chance of a -16% return What is the expected return and standard deviation of this investment?|

Essentials Of Investments
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
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I am struggling with this problem and getting it set up for excel.

You are looking at an investment with the following outcomes (and probabilities): 2.> 11% chance of a 38% return 24% chance of a 15% return 12% chance ofa 12%return 17% chance ofa 7% return 18% chance ofa 2% return 10% chance ofa-4% return' 8% chance of a -16% return What is the expected return and standard deviation of this investment?|
Transcribed Image Text:You are looking at an investment with the following outcomes (and probabilities): 2.> 11% chance of a 38% return 24% chance of a 15% return 12% chance ofa 12%return 17% chance ofa 7% return 18% chance ofa 2% return 10% chance ofa-4% return' 8% chance of a -16% return What is the expected return and standard deviation of this investment?|
Expert Solution
Step 1

Calculation of Expected Return and Standard Deviation:

The expected return is 9.09% and standard deviation is 13.36%.

Excel Spreadsheet:

A В C 1 Probability Returns Probability*Returns Variance of Returns 4.1800% 0.00919367 2 11% 38% 24% 3 15% 3.6000% 0.00083827 12% 1.4400% 4 12% 0.00010162 0.00007426 5 17% 7% 1.1900% 18% 6 2% 0.3600% 0.00090483 7 10% -4% -0.4000% 0.00171348 0.00503606 8 8% -16% -1.2800% 9 Expected Return 9.09% 0.01786219 10 Variance 11 Standard Deviation 13.36%
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