Question

B. J. Gautney Enterprises is evaluating a security. ​ One-year Treasury bills are currently paying 4.7...

B. J. Gautney Enterprises is evaluating a security. ​ One-year Treasury bills are currently paying 4.7 percent. Calculate the​ investment's expected return and its standard deviation. Should Gautney invest in this​ security?

Probability   Return
0.10   -6%
0.45   4%
0.35   5%
0.10   10%

Homework Answers

Answer #1

Hello Sir/ Mam

Economy Probability Returns P*R (Return - Mean)^2 * P
Boom 10% -6.00% -0.600% 0.0009900
Good 45% 4.00% 1.800% 0.0000001
Poor 35% 5.00% 1.750% 0.0000386
Bust 10% 10.00% 1.000% 0.0003660
Mean 3.95% 0.00139
S.D. 3.73%

This stock has an mean return of 3.95% with S.D. 3.73% whilst we can invest in T-bill @ 4.7%. Hence, we will not invest in this investment.

I hope this solves your doubt.

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