Based on the following information, calculate the expected value, and standard d

Question

Based on the following information, calculate the expected value, and standard deviation of returns for Asset A are (See below.) Probability of Pessimistic outcome = .20 Return if Pessimistic outcome occurs = 6% Probability of average outcome = .60 Return if average outcome occurs = 7% Probability of optimistic outcome = .20 Return if optimistic outcome occurs = 11% 10 percent, and 8 percent respectively. 7.60 percent, and 1.74 percent respectively. 7.35 percent, 1.68 percent respectively. 7.35 percent, 2.76 percent respectively.

Explanation / Answer

Expected value = sum of all (returns*its probability)

Thus the expected value = 0.076 or 7.6%

Standard deviation = [sum of probability*(return-expected value)^2]^0.5

Standard deviation = 0.000304^(1/2) =

or 1.74%.

Thus the answer is 7.6% and 1.74% respectively.

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