A share of an oil company can be worth $10 with a probability of 0.50 and $20 with a probability of 0.50.What is the standard deviation of the price of this share?
A) 3
B) 5
C) 6
D) 8.5

Question

Quizplus · Accepted Answer

To calculate the standard deviation, we need to first calculate the expected value (or mean) of the share price:

Expected value = (0.5 * $10) + (0.5 * $20) = $15

Then, we can calculate the variance:

Variance = [(0.5 * ($10 - $15)^2) + (0.5 * ($20 - $15)^2)] = $25

Finally, we take the square root of the variance to get the standard deviation:

Standard deviation = sqrt($25) = $5

Therefore, the answer is B - 5.

A Share of an Oil Company Can Be Worth $10