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LeRoy · Answer 1 · 2021-10-27T08:57:30+0000

Answer:

A. 7.95%.

Step-by-step explanation:

Calculate the expected rate of return for the investment as follows:

$\begin{aligned}\text { Expected rate of return } &=(\text { Probability } * \text { Rate of return })+(\text { Probability } * \text { Rate of return })+\\&(\text { Probability } * \text { Rate of retum }) \\=&(0.40 * 15 \%)+(0.50 * 10 \%)+(0.10 *-3 \%) \\=& 0.06+0.05-0.003 \\=& 0.107$

Calculate the standard deviation of the investment as follows:

$\begin{aligned}\text { Standard deviation }=&\left\{\begin{array}{l} \text { Probability } \left.*(\text { Return }-\text { Expected return })^(2)\right)+ \\\text { (Probability } \left.*(\text { Return }-\text { Expected return })^(2)\right)+ \\\text { (Probability } \left.*(\text { Return }-\text { Expected return })^(2)\right)\end{array}\right.$

=
$\sqrt{\left(0.40 *(0.15-0.107)^(2)\right)+\left(0.50 *(0.10-0.107)^(2)\right)+} \\=√(0.0007396+0.0000245+0.0018769) \\=√(0.002641) \\=0.05139066063011$

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