7. value: 6.66 points An analyst has developed the following probability distrib

Question

7. value: 6.66 points An analyst has developed the following probability distribution for the rate of return for a common stock. Scenario Probability Rate of Return 0.32 0.49 0.19 -16% 5% 25% 2 a. Calculate the expected rate of return. (Round your answer to 2 decimal places.) Expected rate of return b. Calculate the variance and the standard deviation of this probability distribution. (Use the percentage values for your calculations (for example 10% not 0.10). Round intermediate calculations to 4 decimal places. Enter your answer as a percentage rounded to 2 decimal places.) Variance Standard deviation eBook & Resources

Explanation / Answer

Solution:

a) Expected rate of return = pixi

= 0.32(-16) + 0.49(8) + 0.19(20)
= 2.6 %

b) Variance = (xi - )2 * pi

= (-16 - 2.6)2 * 0.32 + (8- 2.6)2 * 0.49+ (20 - 2.6)2 * 0.19

= 182.52 %

Standard deviation = sqrt(182.52) = 13.51%

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.