Problem 7.18 a1-a2 (Solution Video)

Susan is considering investing in a company's stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment.

		Probability		Return
Boom		0.1		25.00%
Good		0.1		15.00%
Level		0.3		10.00%
Slump		0.5		-5.00%

Use the table of returns and probabilities above to determine the expected return on Susans investment? (Round answer to 3 decimal places, e.g. 0.076.)

Expected return

Use the table of returns and probabilities above to determine the standard deviation of the return on Susan's investment? (Round answer to 5 decimal places, e.g. 0.07680.)

Standard deviation