James is considering whether to invest in a newly formed


James is considering whether to invest in a newly formed investment fund. The fund's investment objective is to acquire home mortgage securities at what hopes will be bargian prices. The fund sponsor suggested to james that the fund's performance will hinge on how the national economy performs in the coming year. Specifically, he suggested the following possible outcomes.

State of Economy            Probability          Fund Returns

Rapid expansion and recovery   10%        100%

Modest growth                50%        30%

Continued recession      30%        10%

Falls into depression       10%        -100%

a. Based on these potential outcomes, what is your estimate of the expected rate of return from this investment? (Round two decimal places)

b. Calculate the standard deviation in the anticipated return found in part a. (Round two decimal places)

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Financial Management: James is considering whether to invest in a newly formed
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