Hans Valen Holdings Ltd. is planning to invest in a security that has several possible rates of return. Given the following probability distribution of returns:

Probability Return

10% -10%

20% 5%

30% 10%

40% 25%

Required:

a) What is the expected rate of return on the investment?

b) What is the standard deviation of the expected return?

c) Briefly discuss the meaning of your solutions to parts a) and b) of this question, in terms of what the calculations represent when assessing the security in comparison to possible alternative investments