Question
2. The following table shows the one-year return distribution of Startup, Inc. Calculate a. The expected return. b. The standard deviation of the return Probability
2. The following table shows the one-year return distribution of Startup, Inc. Calculate a. The expected return.
b. The standard deviation of the return
Probability | 40% |
|
| 20% |
| 20% |
| 10% |
| 10% | |
Return |
| -100% |
|
| -75% |
| -50% |
| -25% |
| 1000% |
- Expected (Mean) Return
Expected Return = E[R] = R PR X R
E[RStartup Inc] = 40% (-100%) + 20% (-75%) + 20% (-50%) + 10% (-25%) + 10% (1000%) = 6.5%
- The standard deviation of the return
Var(R) = E[(R E[R]2] = R PR X (R E[R])2
SD(R) = Var(R)
Var(RStartup Inc) = 40% (-100% - 0.065)2 + 20% (-75%- 0.065)2 + 20% (-50%- 0.065)2 + 10% (-25%- 0.065)2 + 10% (1000%- 0.065)2 =
Just wondering if I ended up calculating the Expected (Mean) Return correctly?
Also, I am stuck regarding the standard deviation of the return. Am I going about this homework problem the right way?
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