Supposing the return from an investment has the following probability distribution Return Probability R (%) 8 0.2 10 0.2 12 0.5 14 0.1 Required: What is the expected return of the investment? What is the risk as measured by the standard deviation of expected returns?

Supposing the return from an investment has the following probability distribution Return Probability R (%) 8 0.2 10 0.2 12 0.5 14 0.1 Required: What is the expected return of the investment? What is the risk as measured by the standard deviation of expected returns?

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter5: Probability: An Introduction To Modeling Uncertainty

Section: Chapter Questions

Problem 16P: The following table provides a probability distribution for the random variable y. a. Compute E(y)....

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Question

Supposing the return from an investment has the following probability distribution

Return Probability

R (%)

8 0.2

10 0.2

12 0.5

14 0.1

Required:

What is the expected return of the investment?

What is the risk as measured by the standard deviation of expected returns?

Return
(R)
Exp. Ret.
Prob. P
(a)
Exp. Ret. P. x
(c)= a x R
Deviation
R-R
Variance
Standard deviation is the square root of variance
Dev
a(R-R)²

Formula Formula ROI (%) = Net Income Principal Amount × 100

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