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t & Links x le Chrome ? Secure : https://www.mathd.com/ Student/PlayerTest aspx?quizme -1&ichapterid-8; BFN 201 Summer 2018 Brandon Schrowang &I; 7/27/18 1:11 PM Quiz M e: Quiz Me: 6.2 Define and measure the riskiness of ar Submit Qu This Question: 1 pt 3 of 7 This Quiz: 7 pts pos (Expected rate of return and risk) Carter Inc. is evaluating a security, Calculate the investment's RETURN o PROBABILITY 0.05 0.35 0.55 0.05 5% 99% 1296 15% (Click on the icon located on the top-right coner of the data table above in order to copy its contents into a spreadsheet.) a. The investment's expected rate of return is%. (Round to two decimal places) b. The investment's standard deviation is % (Round to two de rnal places) ces

Explanation / Answer

Investment's expected return = Probability * expected return

Investment's expected return = 0.05 * 0.05 + 0.35 * 0.09 + 0.55 * 0.12 + 0.05 * 0.15

Investment's expected return = 0.0025 + 0.0315 + 0.066 + 0.0075

Investment's expected return = 0.1075 or 10.75%

Standard deviation = [ 0.05 ( 0.05 - 0.1075 )2 + 0.35 ( 0.09 - 0.1075 )2 + 0.55 ( 0.12 - 0.1075)2 + 0.05 ( 0.15 - 0.1075)2] 1/2

Standard deviation = [ 0.000165 + 0.000107 + 0.000086 + 0.00009 ]1/2

Standard deviation = [ 0.000448 ]1/2

Standard deviation = 0.0215 or 2.15%

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