48) You are considering investing in a project with the following possible out c

Question

48) You are considering investing in a project with the following possible out
comes:
Probability of Investment
States Occurrence Returns
State 1: Economic boom 18% 20%
State 2: Economic growth 42% 16%
State 3: Economic decline 30% 3%
State 4: Depression 10% -25%

Calculate the expected rate of return and standard deviation of returns for
this investment, respectively.
a. 2.18%, 1.69%
b. 8.72%, 12.99%
c. 7.35%, 12.99%
d. 3.50%, 1.69%

49) Assume that an investment is forecasted to produce the following returns: a
20% probability of a $1,200 return; a 50% probability of a $5,600 return;
and a 30% probability of a $9,500 return. What is the expected amount of
return this investment will produce?
a. $7,136
b. $6,125
c. $5,890
d. $4,533

Explanation / Answer

.18*.2 +.42*.16+.30*.03- ,25*.10= 8.72 B .20* 1,200+.50*5,600+.30*9,500=5,890 C

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