Assume that the security costs $3,000 today and pays off some amount b in 1 year. Assume that b is uncertain according to given table of probabilities:
b: $3,000 $3,300 $3,600 $3,900 $4,200
Probability: 0.1 0.2 0.3 0.2 0.2
i) Compute return (in percent) for each value of b.
ii) Compute expected return (in percent).
iii) Compute standard deviation of return.
iv) Assume that the investor has the choice between purchasing this security or buying the different security which also costs $3,000 today but pays off $3,300 with certainty in 1 year. How is the investor's choice of which security to buy associated to his degree of risk aversion?