Suppose that a security costs $3000 today and pays off some amount b in one year. suppose

Question:

Suppose that a security costs $3000 today and pays off some amount b in one year. suppose that b is uncertain according to the following table of probabilities.

B________$3000_____$3300__________$3600________$3900________$4200

Probability0.1_______0.2_____________0.3__________0.2__________0.2

A. Calculate the return (in Percent) for each value of b. (note: you may just calculate the total return and not worry about how this split between current yield and capital- gains yield)

B. Calculate the expected return (in Percent)

C. Calculate the standard deviation of the return

D. Suppose that an investor has choice between buying this security or purchasing a different security that also cost $3000 today but pays off $3300 with certainty in one year. How is an investor's choice of which security to purchase related to his degree of risk aversion

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...