You are considering an investment costing $10,000, for which the future cash flows from owning the security depend on the state of the economy as estimated in this table. In any given year the investment could produce any one of three possible cash flows, depending on the particular state of the economy.

Requirements:

By following above information calculate -

a- Expected cash flow

b- Expected rate of return

c- The standard deviation of the returns

% Return State of the economy Probability of the states Cash flow from the investment 25% Economic Recession $1,400 14% 35% $1,700 17% Moderate Economic Growth 55% $2000 20% Strong Economic Growth