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A company is evaluating a security as a standalone investment. The risk-free rate of return is 5.1% per annum. The probability distribution of annual returns
A company is evaluating a security as a standalone investment. The risk-free rate of return is 5.1% per annum. The probability distribution of annual returns for the security is given in the table below:
Return | Probability |
-2% | 0.15 |
5% | 0.3 |
7% | 0.4 |
10% | 0.15 |
|
|
(a) Calculate the expected return of the security. (2 marks)
(b) Calculate risk (standard deviation) of the security. (4 marks)
(c) Explain whether the company should invest in this security. (3 marks)
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