In: Finance
Richard has two investment opportunities. He can invest in The Sunglasses Company or The Umbrella Company. What is the expected return and standard deviation of each company?
State of the Economy |
Probability of the State |
Expected Return Sunglasses Company |
Expected Return Umbrella Company |
Sunny |
.50 |
25% |
0% |
Rainy |
.50 |
0% |
25% |
A.
The expected return for each company is 12.50% and the standard deviation for each company is 25.00%.
B.
The expected return for each company is 12.50% and the standard deviation for each company is 12.50%.
C.
The expected return for each company is 12.50% and the standard deviation for each company is 0.00%.
D.
The expected return for each company is 12.50% and the standard deviation for each company is 156.25%.
Solution :
The solution is Option B.:
The expected return for each company is 12.50% and the standard deviation for each company is 12.50%.
Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.