What is the standard deviation of the investment payoff described in problem 4?
A) $0
B) $2,581,875
C) $42.50
D) $1,606.82

Question

Quizplus · Accepted Answer

The standard deviation of the investment payoff can be calculated using the formula:

SD = sqrt [ Σ ( Xi - X )^2 / N ]

where Xi is the payoff for each possible outcome, X is the expected value of the payoff (calculated in problem 4 as $265,981.25), and N is the total number of possible outcomes (10 in this case).

Using the data from problem 4, we can calculate the standard deviation as follows:

SD = sqrt [ (50,000 - 265,981.25)^2 + (100,000 - 265,981.25)^2 + ... + (500,000 - 265,981.25)^2 / 10 ]
   = sqrt [ 245,212,699,218.75 / 10 ]
   = $1,606.82

Therefore, the best choice is D, $1,606.82.

What Is the Standard Deviation of the Investment Payoff Described