Question

Ben would like to invest in gold and is aware that the returns on such an investment can be quite volatile. Use the following table of states, probabilities, and returns and determine Probability Return Boom 0.1 27% Good 0.2 22% Ok 0.3 11% Level 0.2 5% Slump 0.2 -31%

Your answer is incorrect. Try again. What is the expected return on Ben’s gold investment? (Round answer to 3 decimal places, e.g. 0.076.) Expected return LINK TO TEXT

Your answer is incorrect. Try again. What is the standard deviation of the return on Ben’s gold investment? (Round intermediate calculations and answer to 5 decimal places, e.g. 0.07680.) Standard deviation Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT

Answer 1

Calculation of Expected Return:
Economy	Probality	Return	Return*Probablity
Boom	0.1	27%	2.70%
Good	0.2	22%	4.40%
Ok	0.3	11%	3.30%
Level	0.2	5%	1.00%
Slump	0.2	-31%	-6.20%
		Expected Return:	5.20%
Expected return is 5.200%
Calculation of Standard Deviation:
Economy	Probality	Return	Deviation from expected return	Deviation squared	Deviation Squared*probablity
Boom	0.1	27%	21.80%	0.04752	0.004752
Good	0.2	22%	16.80%	0.02822	0.005645
Ok	0.3	11%	5.80%	0.00336	0.001009
Level	0.2	5%	-0.20%	0.00000	0.000001
Slump	0.2	-31%	-36.20%	0.13104	0.026209
				Variance	0.037616
Standard Deviation = Sq Root of Variance Standard Deviation = sqroot( 0.037616)
	= 0.193948
0.19395 is the standard deviation.