Question

You anticipate that an investment has a 30% chance of earning a 20% return, a 40% chance of earning a 5% return, and a 30% chance of earning 12%. What is the standard deviation of this investment?  Answer in percent form to two decimal places.

Answer 1

Ans 6.22

	Probability (P)	RETURN (Y)	(P * Y )	P * (Y -Average Return of Y)^2
	30%	20	6.00	21.17
	40%	5	2.00	17.42
	30%	12	3.60	0.05
		TOTAL	11.60	38.64
Expected Return =		(P * Y)
		11.60%
VARIANCE =		P * (Y -Average Return of Y)^2
		38.6400
Standard Deviation =		Square root of (P * (Y -Average Return of Y)^2)
		Square root of 38.64
		6.22