Question
Sam recently invested in real estate with the intention of selling the property in one year from today. He has modelled the returns on that
Sam recently invested in real estate with the intention of selling the property in one year from today. He has modelled the returns on that investment is based on three economic scenarios. He believes that if the economy stays healthy, then his investment will generate a 30 percent return. However, if the economy softens, as predicted, the return will be 10 percent, while the return will be -25 percent if the economy slips into recession. If the probabilities of the healthy, soft, and recessionary states are 0.2, 0.6 and 0.2. respectively, then what are the expected return and the standard deviation of the return of Sams investment?
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