Use the table for the question(s)below.
Consider the following probability distribution of returns for Alpha Corporation:
-Suppose an investment is equally likely to have a 35% return or a -20% return.The standard deviation on the return for this investment is closest to:
A)38.9%.
B)0%.
C)19.4%.
D)27.5%.

Question

Use the table for the question(s)below.
Consider the following probability distribution of returns for Alpha Corporation: 
-Suppose an investment is equally likely to have a 35% return or a -20% return.The standard deviation on the return for this investment is closest to:
A)38.9%. 
B)0%. 
C)19.4%. 
D)27.5%.

Quizplus · Accepted Answer

The standard deviation is calculated using the formula for a discrete random variable: sqrt(p1*(x1-mean)^2 + p2*(x2-mean)^2). Here, p1 = p2 = 0.5, x1 = 35%, x2 = -20%, and mean = 7.5%. The calculation gives approximately 27.5%.

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