Question

The table​ shows the​ one-year return distribution of Startup Inc.

Probability	0.40	0.20	0.20	0.10	0.10
Return	-1.00	-0.75	-0.50	-0.25	10.00

Calculate​ the expected return. _____% (Percentage)

Calculate the standard deviation of the return._____% (Percentage)

Answer 1

	Expected return = Sum of (return*probabilities)
	Standard deviation = Square root of Variance = square root of (Sum square of deviation of return from its mean * probability)
	Below table shows the computation of Expected Return and Standard Deviation
	i	ii	iii=i*ii	iv=ii-0.33%	v=iv^2	vi=v*i
	Probability (p)	Return(x)	p*x	x-mean	(x-mean)^2	(x-mean)^2*probability
	0.4	-1%	-0.40%	-1.33%	0.02%	0.01%
	0.2	-0.75%	-0.15%	-1.08%	0.01%	0.00%
	0.2	-0.50%	-0.10%	-0.83%	0.01%	0.00%
	0.1	-0.25%	-0.03%	-0.58%	0.00%	0.00%
	0.1	10%	1.00%	9.68%	0.94%	0.09%
			0.33%			0.105%
	Hence, expected return = 0.33%
	Standard deviation = square root of Variance					=squre root of 0.105%
	Standard deviation =					3.23%

answered by: anonymous