Question

QUESTION 5

1. After extensive research, you believe the probability distribution for next year's return on FB Inc is:

   Return	Probability
   -1.5%	0.2
   20.2%	0.3
   -6.3%	0.3
   12.3%	0.2

   
   Compute the standard deviation of this return.  
   
   Express your answer as a percentage to three decimal places (the percent sign is not essential). That is, if you compute a standard deviation of 0.12345, enter your answer as 12.345.

Answer 1

first let us know the expected return

=> (-1.5%)*0.20 + (20.2%*0.30) + (-6.3%*0.30) + (12.3%*0.2)

=>-0.30+6.06-1.89+2.46

=>6.33%.

now,

calculation of standard deviation:

return	probability	(return - expected return)^2	Probability*(return - expected return)^2
-1.5%	0.20	(-1.5-6.33)^2=>61.3089	0.20*61.3089=>12.26178
20.20%	0.30	(20.2-6.33)^2=>192.3769	0.30*192.3769=>57.71307
-6.3%	0.30	(-6.3-6.33)^2=>159.5169	0.30*159.5169=>47.85507
12.3%	0.20	(12.3-6.33)^2=>35.6409	0.20*35.6409=>7.12818
		variance	124.9581

standard deviation = 124.9581

=>11.178.