Question

1. Given the following probability distribution, calculate the standard deviation.

Probability - Outcome

40% ------------- (-5%)

40% ------------- 10%

20% ------------- 30%

A. 12.88%

B. 12.22%

C. 18.79%

D. 35.00%

2. Given the following probability distribution, calculate the expended return.

Probability - Outcome

20% ------------- 5%

40% ------------- 10%

20% ------------ 15%

20% ------------ 20%

A. 18.875%

B. 12.00%

C. 12.50%

D. 50.25%

3. If the expected return is 6% and the standard deviation is 9% then what is the coefficient of variation? (express your answer to 1 decimal place)

__________

Answer 1

Question 1

Probability (P)	Return(%)	Probability*Return	Deviation form expected return (D)	PD^2
0.4	-5	-2.00	-13.00	67.60
0.4	10	4.00	2.00	1.60
0.2	30	6.00	22.00	96.80

Expected return = Probability*Return

= -2+4+6

= 8.00%

Variance = PD^2

= 67.60+1.60+96.80

= 166

Standard Deviation = Variance

= 166

= 12.88%

*Deviation form expected return = Rate of return -  expected return​

Question 2

Probability (P)	Return(%)	Probability*Return
0.2	5	1.00
0.4	10	4.00
0.2	15	3.00
0.2	20	4.00

Expected return = Probability*Return

= 1+4+3+4

= 12.00%

Question 3

Coefficient of Variation (CV) = Standard Deviation / Expected return

= 9/6

= ​​​​​​​1.5