Question: Problem 1 The Clayton Hotel is expected to generate different returns based on the state of the economy. These are shown in the following figure

Problem 1

The Clayton Hotel is expected to generate different returns based on the state of the economy. These are shown in the following figure

State of the economy

Probability of each state

Return

Recession

10%

-5%

Moderate growth

60%

6%

Boom

30%

18%

a. Calculate the expected return for the Clayton Hotel using a simple average.

6.33%

b. Calculate the expected return for the Clayton Hotel using a weighted average.

8.50%

Problem 2

Based on the information in Problem 1, complete the following for the Clayton Hotel.

a. Calculate the variance.

0.49%

b. Calculate the standard deviation.

7.00%

c. Interpret the standard deviation relative to the normal distribution.

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