Tommie has made an investment that will generate returns that are subject to the state of the economy during the year. Use the following information to calculate the standard deviation of the return distribution for Tommie's investment.
State
Return
Probability
Weak
0)13
0)3
OK
0)2
0)4
Great
0)25
0)3

Question

Quizplus · Accepted Answer

To calculate the standard deviation of the return distribution, we need to first calculate the expected return and the variance.
Expected return = (0.13 x 0.3) + (0.2 x 0.4) + (0.25 x 0.3) = 0.1975
Variance = [(0.13 - 0.1975)^2 x 0.3] + [(0.2 - 0.1975)^2 x 0.4] + [(0.25 - 0.1975)^2 x 0.3] = 0.0017425
Standard deviation = sqrt(0.0017425) = 0.0467
Therefore, the best choice is B.

Tommie Has Made an Investment That Will Generate Returns That