Your investment has a 30% chance of earning a 10% rate of return, a 40% chance of earning a 23% rate of return and a 30% chance of earning -7%. What is the standard deviation on this investment?

Your investment has a 30% chance of earning a 10% rate of return, a 40% chance of earning a 23% rate of return and a 30% chance of earning -7%. What is the standard deviation on this investment? (Put your answers in decimal points instead of percentage)

You calculated that the average return of your portfolio is 7% and the standard deviation is 17%, what is the value at risk (VaR) at 5% for your portfolio?

Solutions

Expert Solution

Calculation of the standard deviation of the investment

Possible return Probability Possible return *probability =possible outcome

10% .3 (30%) 3%

23% .4 (40%) 9.2%

-7% .3 (30%) -2.1%

Expected return =3%+9.2%-2.1%

=10.1%

Deviation=(possible outcome-expexted return) deviaton square

3%-10.1% = -7.1 -7.1*-7.1 =50.41

9.2%-10.1%= -.9 -.9*-.9 =.81

-7%-2.1%= -9.1 -9.1*-9.1 =82.81

Probability *deviation square

.3*50.41 =151.23

.4*.81 =3.24

.3*82.81 =24.843

=151.23+3.24+24.843

=179.313

standard deviation of the investment =S.d√probability *deviation square

=√ 179.313

=13.39

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Your investment has a 15% chance of earning a 35% rate of return, a 55% chance...

Your investment has a 15% chance of earning a 35% rate of return, a 55% chance of earning a 15% rate of return, and a 30% chance of losing 7%. Your expected return on this investment is % Please enter your answer with TWO decimal points.

Your investment has a 20% chance of earning a 26% rate of return, a 50% chance...

Your investment has a 20% chance of earning a 26% rate of return, a 50% chance of earning a 15% rate of return and a 30% chance of losing 9%. What is your expected return on this investment? Enter answer in percents, accurate to two decimal places.

8. Your investment has a 20% chance of earning a 25% rate of return, a 50%...

8. Your investment has a 20% chance of earning a 25% rate of return, a 50% chance of earning a 12% rate of return and a 30% chance of losing 10%. What is your expected return on this investment? What is the standard deviation? What is the coefficient of variation?

ABC Inc.'s stock has a 30% chance of producing a 10% return, a 40% chance of...

ABC Inc.'s stock has a 30% chance of producing a 10% return, a 40% chance of producing a 0% return, and a 30% chance of producing a -5% return. What is the firm's expected rate of return?

10. Security A has an expected rate of return of 10% and a standard deviation of...

10. Security A has an expected rate of return of 10% and a standard deviation of 16%. Security B has an expected rate of return of 8% and a standard deviation of 12%. Let A and B are perfectly negatively correlated. The expected return of a risk-free portfolio formed with A and B is Select one: a. 10% b. 9.47% c. 7.86% d. 8.86%

If you invest 40% of your money in A and 60% in B, what would be your portfolio's expected rate of return and standard deviation?

Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.10 10 % 8 % 2 0.20 13 % 7 % 3 0.20 12 % 6 % 4 0.30 14 % 9 % 5 0.20 15 % 8 % If you invest 40% of your money in A and 60% in B, what would be your portfolio's expected rate of return and standard deviation? 9.9%; 3% 9.9%; 1.1% 11%;...

Stock A has an expected return of 16% and a standard deviation of 30%.

Stock A has an expected return of 16% and a standard deviation of 30%. Stock B has an expected return of 14% and a standard deviation of 13%. The risk-free rate is 4.7% and the correlation between Stock A and Stock B is 0.9. Build the optimal risky portfolio of Stock A and Stock B. What is the expected return on this portfolio?

R = -12%, 17%,25%,27% Probability = 10%, 20%,40%,30% Calculate the average return and standard deviation using...

R = -12%, 17%,25%,27% Probability = 10%, 20%,40%,30% Calculate the average return and standard deviation using probability Ignore probability and calculate average return and standard deviation using once population and once sample

An investment company A has an expected return of $2,000 with a standard deviation of $200....

An investment company A has an expected return of $2,000 with a standard deviation of $200. An investment in company B has an expected return of $3,000 with a standard deviation of $100. If the returns are normally distributed and independent, what is the probability that the total return from both investments will be at least $5,000?

If a stock has a 30% chance of losing 18%, a 40% chance of losing only...

If a stock has a 30% chance of losing 18%, a 40% chance of losing only 3%, and a 30% chance of making 15%, what is the expected return of this stock? -2.10% 7.25% 11.10% -7.25%

Subjects