Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return, and a 30% chance

Question

4 years ago

9

of losing 6%. What is your standard deviation on this investment?a. 12.8%b. 15.6%c. 15.4%d. 12.5%

1 answer:

ANTONII [103] · Answer 1 · 2021-12-05T05:33:00+03:00

Answer:

a: 12.8%

Explanation:

Standard Deviation would be calculated with the probability approach since there is probability given in the question.

Formula of Standard Deviation and the solution is given in the pictures below.
Although ERR the required part to calculate Standard Deviation is calculated in the text.

Calculating ERR:

ERR= Sum of Probabilities × Rate of returns.

In our question = ERR= 0.2 × 30% + 0.5 × 10% + 0.3 × (-6%) = 0.128 = 12.8%

Thus, by putting all the values in the formula you will get the answer 12.8%.