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Question 2: In the following, the probabilities of the different states of the economy and the associated rate of return for each state are given.
Question 2: In the following, the probabilities of the different states of the economy and the associated rate of return for each state are given. (3.5 Marks)
| State of Economy | Probability of State of Economy (P) | Rate of Return (r) |
| Recession | 0.3 | - 12% |
| Most likely | 0.5 | 6% |
| Boom | 0.2 | 11% |
- Calculate the expected rate of return (1 mark)
- Calculate the variance (2 marks)
- Calculate the standard deviation (0.5 marks)
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