1. You are thinking of making a Php 50,000 investment that would have the following possible outcomes in cash flows each year:

PROBABILITY CASH FLOW

0.20 Php 3,500

0.50 6,250

0.30 9,000

What is the expected value of the future cash flows and the expected rate of return?

NOTES:

Possible Returns = Possible Cash Flows divided by Investment.

Expected Cash Flows = Possible Cash Flows X Probabilities

Expected Rate of Return = Possible Returns X Probabilities

2. Using the same investment of Php 50,000 (stated in No.3), calculate for the standard deviation of the possible returns. What does your standard deviation answer mean?