Question:
1. Barbara is investing in a stock and is aware that the return on that investment is mainly sensitive to how the economy is performing. Her analysis suggests that 4 states of the economy will affect the return on the investment. Using the table of returns and probabilities below, evaluate
Probability Return
Boom 0.3 25.00%
Good 0.3 15.00%
Level 0.2 10.00%
Slump 0.2 -5.00%
a. Determine the expected return on Barbara's investment?
b. Evaluate the standard deviation of the return on Barbara's investment?