A project has a 0.72 chance of doubling your investment in a year and a 0.28 cha

Question

A project has a 0.72 chance of doubling your investment in a year and a 0.28 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

A project has a 0.72 chance of doubling your investment in a year and a 0.28 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Calculation of Standard Deviation:

Variance = Y - X^2

Variance = 29,500 - 24,964 = 4,536

Standard Deviation = Underroot 4,536

Standard Deviation = 67.35

Return Probability X(Return x Probability) Y (Return^2 x Probability) 200 0.72 144 28,800 50 0.28 14 700 158 29,500

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