Problem: 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?