View Point Industries has forecasted a rate of return of 20.00% if the economy booms (25.00% probability); a rate of return of 15.00% if the economy is in a growth phase (45.00% probability); a rate of return of 2.50% if the economy is in decline (20.00% probability); and a rate of return of -15.00% if the economy is in a depression (10.00% probability). What is View Point's standard deviation of returns? Do not round intermediate computations. Round your final answer to two decimal points.
A) 17.31%
B) 9.25%
C) 15.00%
D) 10.29%

Question

Quizplus · Accepted Answer

The standard deviation of returns is calculated by first determining the expected return, then calculating the variance, and finally taking the square root of the variance. The expected return (ER) is calculated as follows: ER = (0.25 * 20%) + (0.45 * 15%) + (0.20 * 2.5%) + (0.10 * -15%) = 11.25%. The variance (Var) is calculated as: Var = (0.25 * (20% - 11.25%)^2) + (0.45 * (15% - 11.25%)^2) + (0.20 * (2.5% - 11.25%)^2) + (0.10 * (-15% - 11.25%)^2) = 1.05625%. The standard deviation (SD) is the square root of the variance: SD = sqrt(1.05625%) = 10.29%.

View Point Industries Has Forecasted a Rate of Return of 20.00