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Probability Expected Return 0.3 -10% 0.4 5% 0.3 15% If IBM has the probability distribution shown...

Probability

Expected Return

0.3

-10%

0.4

5%

0.3

15%

If IBM has the probability distribution shown in the table above, what is IBM’s standard deviation?

Solutions

Expert Solution

Expected return=Respective return*Respective probability

=(0.3*-10)+(0.4*5)+(0.3*15)

=3.5%

probability Return probability*(Return-Expected Return)^2
0.3 -10 0.3*(-10-3.5)^2=54.675
0.4 5 0.4*(5-3.5)^2=0.9
0.3 15 0.3*(15-3.5)^2=39.675
Total=95.25%

Standard deviation=[Total probability*(Return-Expected Return)^2/Total probability]^(1/2)

=(95.25)^(1/2)

=9.76%(Approx)

jeff jeffy answered 2 years ago
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