A First Course in Probability (10th Edition)
A First Course in Probability (10th Edition)
10th Edition
ISBN: 9780134753119
Author: Sheldon Ross
Publisher: PEARSON
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you are considering two mutual funds as an investment. The possible returns for the funds are dependent on the state of the economy and are given in the accompanying table.

 

State of the Economy Fund 1 Fund 2
Good 42 % 42 %
Fair 18 % 18 %
Poor −18 % −15 %
 

 

You believe that the likelihood is 14% that the economy will be good, 46% that it will be fair, and 40% that it will be poor.

 

a. Find the expected value and the standard deviation of returns for Fund 1 AND 2    

I have expecte value

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a)

Expected values and standard deviation of returns for Fund 1:

X PX XPX X2PX
42 0.14 42×0.14=5.88 422×0.14=246.96
18 0.46 18×0.46=8.28 182×0.46=149.04
-18 0.40 -18×0.40=-7.2 -182×0.40=129.6
    XPX=6.96 X2PX=525.6

Expected value of return for fund 1:

EX=XPX=6.96%

Standard deviation for fund 1:

σ=X2PX=525.6=22.926

 

 

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