Question

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%.

Answer 1

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.