Section Two: Short Answer (2 Questions; each question is worth 10 points) Show a

Question

Section Two: Short Answer (2 Questions; each question is worth 10 points) Show all of your work! 1. Carson Inc.'s manager believes that economic conditions during the next year will be strong normal, or weak, and she thinks that the firm's returns will have the probability distribution shown below. What's the standard deviation of the estimated returns? (Hint: Use the formula for the standard deviation of a population, not a sample.) Economic Conditions Prob Strong Normal Weak 30% 40% 30% Return 32.0% 10.0% -16.0%

Explanation / Answer

Expected Return = 0.30*32+0.40*10-0.30*16 = 8.8%

Variance = 32*32*0.30+10*10*0.40+16*16*0.30-8.8*8.8 = 346.56

Standard Deviation =SQRT(346.56) = 18.62%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.