Expected rate of return and standard deviation
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45. You are considering investing in a project with the following possible outcomes:
Probability of Investment
States Occurrence Returns
State 1: Economic boom 15% 16%
State 2: Economic growth 45% 12%
State 3: Economic decline 25% 5%
State 4: Depression 15% -5%
Calculate the expected rate of return and standard deviation of returns for this investment.
a. 9.8%, 7.0%
b. 7.0%, 43.6%
c. 8.3%, 6.6%
d. 8.3%, 16.1%
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The solution explains how to calculate the expected rate of return and standard deviation.
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