Consider the following bet: heads I pay you a dollar,tails you pay me a dollar.What is the standard deviations of the payoffs (returns)of this bet? (Assume a fair coin.)
A) -$1.00
B) $0
C) $0.50
D) $1.00
E) $10.00

Question

Quizplus · Accepted Answer

Step 1 - Compute the expected return. Expected return = E(k) = Pr₁k₁ + Pr₂k₂+ ... + Pr_nk_n Expected return = 0.5 × ($1.00) + 0.5 × (-$1.00) Expected return = $0 Step 2 - Use the expected return to calculate the standard deviation. Standard deviation = 11ea7fdb_fc11_9f29_a768_65d9d1e77680_TB2902_11 Standard deviation = 11ea7fdb_fc11_9f2a_a768_e5a788814537_TB2902_11 Standard deviation = 11ea7fdb_fc11_9f2b_a768_09df5d690e07_TB2902_11 = 1 or $1

Consider the Following Bet: Heads I Pay You a Dollar,tails