Question

1. What is the expected mean and standard deviation if stock returns followed this historical distribution:  +10% -5%  +20%  +15%. Show your work.
2. If I offer you a bet of +$1 if heads and -$1 if tails, you pick a coin and someone else in class throws it, would you be willing to take this bet? If not, how much would I have to pay you? Compare your answer to the rest of the class and comment on their responses.

Answer 1

Mean return is the arithmetic average of the return.

​​​​​​​