Explanation:
Expected value = (0.4)(10%) + (0.4)(12.5%) + (0.2)(30%) = 15%
Variance = (0.4)(10 − 15)² + (0.4)(12.5 − 15)² + (0.2)(30 − 15)² = 57.5
Standard deviation = √57.5 = 7.58%
(Book 2, Module 13.2, LO 13.c)
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Question 55
An analyst estimates a stock has a 40% chance of earning 10%, a 40% chance of earning 12.5%, and a 20% chance of earning 30%. Which of the following amounts is closest to the stock's standard deviation of expected returns?
A
2.44%.
B
3.87%.
C
6.00%.
D
7.58%.
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