Kimberly is considering investing in a company's stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment.
Probability Return
Boom| 0.3 | 25.00%
Good| 0.1 | 15.00%
Level| 0.2 | 10.00%
Slump| 0.4 | -5.00%
Use the table of returns and probabilities above to determine the expected return on Kimberly’s investment? (Round answer to 3 decimal places, e.g. 0.076.)
Use the table of returns and probabilities above to determine the standard deviation of the return on Kimberly's investment? (Round answer to 5 decimal places, e.g. 0.07680.)
X | P(X) | X*P(X) | X² * P(X) |
25 | 0.3 | 7.5000 | 187.5000 |
15 | 0.1 | 1.5000 | 22.5000 |
10 | 0.2 | 2.00000 | 20.00000 |
-5 | 0.4 | -2.00000 | 10.00000 |
P(X) | X*P(X) | X² * P(X) | |
total sum = | 1 | 9 | 240.00 |
expected return on Kimberly’s investment = mean = E[X] = Σx*P(X) = 9% or 0.090
----------------
E [ X² ] = ΣX² * P(X) =
240.0000
variance = E[ X² ] - (E[ X ])² =
159.0000
std dev = √(variance) =
12.610% or 0.12610
please revert for doubt...
Get Answers For Free
Most questions answered within 1 hours.