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Expected return on Barbara's investment

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Barbara is considering investing in a stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Using the table of returns and probabilities below, find

Probability Return

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Boom 0.5 25.00%
Good 0.3 15.00%
Level 0.1 10.00%
Slump 0.1 -5.00%

What is the expected return on Barbara's investment? (Round answer to 3 decimal places, e.g. 0.076.)

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Solution Preview

Expected return = summation of Pi*Ri
Where Pi=probability of ith scenario and Ri is return ...

Solution Summary

Shows how to calculate expected return on investment given various scenarios

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Barbara is considering investing in a stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Using the table of returns and probabilities below, find the expected return and the standard deviation of the return on Barbara's
investment.
Probability Return
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Boom 0.1 25.00%
Good 0.4 15.00%
Level 0.3 10.00%
Slump 0.2 -5.00%
----------------------------------------------------------------------------------

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