Suppose that a security costs $3,000 today and pays off some amount b in one yea

Question

Suppose that a security costs $3,000 today and pays off some amount b in one year. Suppose that b is uncertain according to the following table of probabilities:
a) Calculate the return (in percent) fore each value of b. (Note: You may just calculate the total return and not worry about how this is split between current yield and capital-gains yield.)
b) Calculate the expected return (in percent).
c) Calculate the standard deviation of the return.
d) Suppose that an investor has a choice between
buying this security or purchasing a different security that also costs $3,000 today but pays off $3,300 with certainty in one year. How is an investor

Explanation / Answer

60% 70% 75% 80% 85%

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