Question

Calculate the mean and variance of the following cash flows.

A 20% probability of making $100, a 30% probability of making $200, a 10% probability of making $500, and a 40% probability of losing $50

Answer 1

1)	Mean of cash flows		$        110
Working:
	Cash	Probability
	a	b	c=a*b
	$        100	20%	$          20
	$        200	30%	$          60
	$        500	10%	$          50
	$         -50	40%	$         -20
	Total		$        110
2)	Variance of cash flows		$ 27,900
Working:
	Cash	Probability	Mean
	a	b	c	d=((a-c)^2)*b
	$        100	20%	$        110	$          20
	$        200	30%	$        110	$    2,430
	$        500	10%	$        110	$ 15,210
	$         -50	40%	$        110	$ 10,240
	Total			$ 27,900