A company will earn 10% returns in a poor economy,15% returns in a normal economy,and 25% returns in a booming economy.What is the standard deviation if there is a 25% chance of a poor economy and a 25% chance of a booming economy?
A) 10.83%
B) 5.45%
C) 6.12%
D) 11.18%
E) 4.91%

Question

Quizplus · Accepted Answer

Step 1 - Compute the expected return. Expected return = E(k) = Pr₁k₁ + Pr₂k₂ + ... + Pr_nk_n Expected return = .25 × 25% + .5 × 15% + .25 × 10%Expected return = 16.25% Step 2 - Use the expected return to calculate the standard deviation: Standard deviation = 11ea7fdb_fc12_3b78_a768_9370d96acaee_TB2902_11 Standard deviation = 11ea7fdb_fc12_6289_a768_d177c48aea15_TB2902_11 Standard deviation = 5.45%

A Company Will Earn 10% Returns in a Poor Economy,15