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Calculate expected return, standard deviation of return

The following table shows the one year return distribution of Startup, Inc.

Calculate:
a) The expected return.
b) The standard deviation of the return.

Probability 40% 20% 20% 10% 10%
Return -100% -75% -50% -25% 1000%

(show calculations)

Solution Preview

Expected return = 0.4 X -1 + 0.2 X -0.75 + 0.2 X -0.50 + 0.1 X -0.25 + 0.1 X 10 = 0.325. Expected return is 32.5%.

To compute std. dev., first we need the ...

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Calculate expected return, standard deviation of return

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