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goldenfox [79]
3 years ago
5

Kate recently invested in real estate with the intention of selling the property one year from today. she has modeled the return

s on that investment based on three economic scenarios. she believes that if the economy stays healthy, then her investment will generate a 30 percent return. however, if the economy softens, as predicted, the return will be 10 percent, while the return will be -25 percent if the economy slips into a recession. if the probabilities of the healthy, soft, and recessionary states are 0.5, 0.3, and 0.2, respectively, then what are the expected return and the standard deviation of the return on kate's investment?

Business
1 answer:
aliina [53]3 years ago
5 0
Check the attached file for the solution. 

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Answer:

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Chances of X2 (Y2) = 75%

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Standard deviation = [ (X1 - Z)^2 × Y1 + (X2 - Z)^2 × Y2 ]^1/2

By putting the value in the formula, we get

Standard deviation = [ ($500,000 - $200000)^2 × 0.25 + ($100,000 - $200,000)^2 × 0.75 ]^1/2

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