Score: 0 of 4 pts 3 of 5 (2 complete) Hw Score: 40%, 8 of 20 pts P7-6 (similar t

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Score: 0 of 4 pts 3 of 5 (2 complete) Hw Score: 40%, 8 of 20 pts P7-6 (similar to) Question Help * (Related to Checkpoint 7.1) (Expected rate of return and risk) B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 4.8 percent. Calculate the investment's expected returm and its standard deviation. Should Gautney invest in this security? Probability 0.05 0.35 0.55 0.05 Return 4% 3% 5% 9% a. The investment's oxpected return is %, Round to two decimal places) Enter your answer in the answer box and then click Check Answer remaining Clear Al Check Answer

Explanation / Answer

Standard Deviation(X) = 5.3475 = 2.312 or 2.31 upto two decimal

NO, since risk free rate is 4.8%

X: Return -4% 3% 5% 9% Probability 0.05 0.35 0.55 0.05 E(X) -0.20% 1.05% 2.75% 0.45% 4.05% Expected Return (X - E(X))2 (-4 - 4.05)2 = 64.8025 (3 - 4.05)2 = 1.1025 (5 - 4.05)2 = 0.9025 (9 - 4.05)2 = 24.5025 Probability 0.05 0.35 0.55 0.05 Variance(X) = 64.8025 × 0.05 + 1.1025 × 0.35 + 0.9025 × 0.55 + 24.5025 x 0.05 = 5.3475 and

Standard Deviation(X) = 5.3475 = 2.312 or 2.31 upto two decimal

NO, since risk free rate is 4.8%

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