Question

An analyst has constructed the following probability distribution for firm X's predicted return for the upcoming year.

Return	Probability
-5	0.24
-8	0.30
10	0.15
12	0.11
-2	0.2

Find the standard deviation of this distribution. (Keep the answer with 2 decimal places)

Answer 1

Solution :

x	P(x)	x * P(x)	x2 * P(x)
-5	0.24	-1.2	6
-8	0.3	-2.4	19.2
10	0.15	1.5	15
12	0.11	1.32	15.84
-2	0.2	-0.4	0.8
Sum	1	-1.18	56.84

Mean = = X * P(X) = -1.18

Standard deviation =

=X ² * P(X) - ²

=  56.84 - (-1.18)²

= 7.45