Step one: calculate the expected rate of return of the investment (15%)
Step two: subtract the expected rate of return of 15% from each of the possible rates of return and square the difference
Step three: multiply the squared differences calculated in step 2 by the probability that those outcomes will occur
Step four: sum all the values (variance)
Step five: take the square root of the variance
Examine, in order, the five-step procedure for finding the standard deviation. Provide a brief description of each step and its purpose when possible. Review internal course readings and external sites about the standard deviation five-step procedure.
Describe and address:
How to calculate the expected rate of return of the investment
Why it is best practice to subtract the expected rate of return of 15% from each of the possible rates of return and square the difference?
Explain the purpose for multiplying the squared differences calculated in step 2 by the probability that those outcomes will occur
Why it is necessary to sum all the values calculated in step 3 together?
What does the square root of the variance calculated in step 4 describe?