What is the standard deviation of the investment payoff described in problem 6?
A) $999000
B) $1000
C) $999,000,000
D) $31,607

Question

Quizplus · Accepted Answer

To calculate the standard deviation, we need to first calculate the variance, which is the average of the squared differences between each payoff and the expected payoff. Using the formula: 
Variance = [(1200000 - 1000000)^2 + (500000 - 1000000)^2 + (-1000000 - 1000000)^2]/3 = $1.33333... x 10^12 
Then, take the square root of the variance to get the standard deviation: 
Standard deviation = sqrt($1.33333... x 10^12) = $31,607. Hence, the correct answer is D.

What Is the Standard Deviation of the Investment Payoff Described