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A proposed one-year investment requires an initial cash outlay of $1,000. The distribution of possible total returns at the end of the year is summarised
A proposed one-year investment requires an initial cash outlay of $1,000. The distribution of possible total returns at the end of the year is summarised below:
Return ($) | Probability |
800 | 10% |
1000 | 30% |
1200 | 40% |
1500 | 20% |
(a) What is the expected dollar outcome?
(b) What is the standard deviation of the dollar outcome about its mean?
(c) Convert the $ returns to % rates of return. What is the expected rate of return for the project?
(d) What is the standard deviation of that rate of return?
(e) Compare and reconcile the answers (a) vs. (c), and (b) vs. (d).
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