Question

There is a security to invest. One-year Treasury bills are currently paying 2.9%. Calculate the following investment’s expected return and its standard deviation. Should you invest in it?

Probability 0.15, 0.30 , 0.40 , 0.15

Return -3% , 2% , 4%, 6%

Your submission must include two parts:

1. Showing clearly which EQUATIONS from the textbook could be used to solve the problem mathematically

2. Indicating the detailed steps on how to use FINANCIAL CALCULATOR to solve the problems. You also need to let me know which financial calculator that you used.

Answer 1

Solution :- Expected return on investment = Probability of return * Return percent.

= 0.15 * (-) 3 % + 0.30 * 2 % + 0.40 * 4 % + 0.15 * 6 %

= (-) 0.45 % + 0.60 % + 1.60 % + 0.9 %

= 2.65 %

Conclusion :- Expected return on investment = 2.65 %.

(No, Investment should not be made because One-year Treasury bill is giving return of 2.90 %, which is risk-free and quite very more than 2.65 %. Accordingly, No investment to be made except Treasury bill investment giving the return of 2.90 %).