Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / The Brewing Company is considering a capital project with a one-year life and the following possible rates of returns which are dependent on the state of the economy
The Brewing Company is considering a capital project with a one-year life and the following possible rates of returns which are dependent on the state of the economy. The estimated rates of return are shown in the table:
Given these probabilities and possible rates of return, the standard deviation of returns on the capital project is _____%. (Fill in the blank with your calculation result of two decimal places).
State of the Economy Probability of Each State Occurring Rates of Return if State Occurs
Boom .40 24%
Normal .40 10%
Recession .20 -12%
View CommentsFlag question
| Computation of Standard Deviation: | |||||||
| State of Economy | Probability | Return | Probability * Return | Return - Expected Return | (Return - Expected Return)^2 | Probability *(Return-Expected return)^2 | |
| Boom | 0.4 | 24% | 9.60% | 12.80% | 0.016384 | 0.66% | |
| Normal | 0.4 | 10% | 4.00% | -1.20% | 0.000144 | 0.01% | |
| Bust | 0.2 | -12.00% | -2.40% | -23.20% | 0.053824 | 1.08% | |
| Expected Return = | 11.20% | Variance = | 1.74% | ||||
| Standard Deviation = | 13.18% | =1.74%^(1/2) | |||||
