Question

Based on the following information, what is the variance?

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
Recession	.23	−	9.10%
Normal	.46		10.60%
Boom	.31		21.60%

Multiple Choice

• .06857

• .02510

• .11203

• .01255

• .01883

Answer 1

The correct answer is .01255

Let Probability be P and Returns be X

Notes -

• -9.10% can be written as -0.091
• 10.60% can be written as 0.106
• 21.60% can be written as 0.216