Explore BrainMass

Explore BrainMass

    Solve: Expected Mean, Variance and Standard Deviation

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    In answering the following questions, it is given that the potential investment has the following range of possible outcomes and probabilities: 10% probability of a -20% return, 40% probability of a 15% return, 40% probability of a 25% return, and a 10% probability of a 50% return.

    (a) Calculate the weighted mean of the probability distribution;
    (b) calculate the variance of the probability distribution;
    (c) Calculate the standard deviation of the probability distribution.
    (d) Calculate the coefficient of variation of the probability distribution.
    (e) Would another investment having a coefficient of variation of .25 appear to offer a higher return per unit of risk?

    © BrainMass Inc. brainmass.com November 24, 2021, 4:15 pm ad1c9bdddf

    Solution Preview

    Please refer attached file for the complete solution. Expressions typed with the help of an equation writer are missing here.

    a) Calculate the weighted mean of the probability distribution

    Probability P Return ( R) P*R
    0.1 -20% -0.02
    0.4 15% 0.06
    0.4 25% 0.1
    0.1 50% 0.05

    Solution Summary

    This solution indicates the steps required to calculate the expected mean, variance, standard deviation and coefficient of variation of the given probability distribution. An Excel attachment file is provided which presents the solution in a neat manner.