Suppose Treasuries yield 5% and the returns for an equity (risky) investment are: Probability Return 0.05 +50% 0.25 +30% 0.40 +10% 0.25 –10% 0.05 –30% Calculate Standard Deviation? Calculate Expected Return?

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Suppose Treasuries yield 5% and the returns for an equity (risky) investment are: Probability Return 0

Finance Aug 05, 2020

Suppose Treasuries yield 5% and the returns for an equity (risky) investment are:

Probability	Return
0.05	+50%
0.25	+30%
0.40	+10%
0.25	–10%
0.05	–30%

Calculate Standard Deviation?

Calculate Expected Return?

Expert Solution

Standard Deviation =(0.5*(50%-10%)^2+0.25*(30%-10%)^2+0.40*(10%-10%)^2+0.25*(-10%-10%)^2+0.05*(-30%-10%)^2)^0.5
=32.86%

Expected Return =0.05*50%+0.25*30%+0.40*10%+0.25*-10%+0.05*-30% =10%

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