Question

A project has a .7 chance of doubling your investment in a year and a .3 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Standard deviation __________%.

Answer 1

68.74%

Step-by-step explanation:

To find the Standard Deviation:

First find expected return.

(0.7*100%)+(0.3*-50%) =70-15= 55%

Then the Variance.

[0.7*(1-0.55)^2]+[.3*(-0.5-0.55)^2]

=0.14175+0.33075

=0.4725

=47.25%

The Standard Deviation is the square root of the variance.

`√(0.4725)`

=0.6874

=68.74%