Question

Kimberly is considering investing in a company's stock and is aware that the return on that...

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.)

Homework Answers

Answer #1
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...

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