Question

Suppose you have a project that has a 0.4 chance of doubling your investment in a year and a 0.6 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 4 places.)

Answer 1

Scenario	Probability	Return	Probability*Return	Expected return-Average return	Deviation^2	Deviation*Probability
	A	B	C=A*B	D=10%-C	E=D^2	A*E
1	40%	100%	40.0%	-30.0%	9.00%	3.600%
2	60%	-50%	-30.0%	40.0%	16.00%	9.600%
		Total	10.0%		Total	13.200%
Expected return	0.1000
Variance	0.1320
Standard deviation	0.3633	Variance^0.5