1. Consider the following probability distribution of returns for Alpha Corporat

Question

1. Consider the following probability distribution of returns for Alpha Corporation:

The expected return for Alpha Corporation is closest to:

5.00%

10.0%

0.00%

6.67%

2. After extensive research, you believe the probability distribution for next year's return on FB Inc is:

Compute the standard deviation of this return.  

Express your answer as a percentage to three decimal places (the percent sign is not essential). That is, if you compute a standard deviation of 0.12345, enter your answer as 12.345.____________

Explanation / Answer

1) return = 0.25*0.40 + 0 + (-0.2*0.25) = 0.2*0.25 = 0.05 = 5%

2) return = -1.5*0.2 + 20.2*0.3 - 6.3*0.3 + 20.4*0.2 = 7.95

    Standard Deviation = [0.2(-1.5-7.95)2 + 0.3(20.2-7.95)2 + 0.3(-6.3-7.95)2 + 0.2(20.4-7.95)2]1/2 = 12.442

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