Asked by Yiachi Fumetsu on May 12, 2024
Verified
A project has a 60% chance of doubling your investment in 1 year and a 40% chance of losing half your money. What is the standard deviation of this investment?
A) 25%
B) 50%
C) 62%
D) 73%
Standard Deviation
A statistical measure that quantifies the amount of variation or dispersion of a set of data values, commonly used in finance to assess the volatility of investment returns.
Investment
Allocating resources, usually money, with the expectation of generating an income or profit.
- Comprehend the idea of risk and return within financial markets.
- Examine the link between risk, return, and how diversifying investment portfolios affects them.
Verified Answer
DO
David OloyedeMay 13, 2024
Final Answer :
D
Explanation :
E[rp] = (.60)(1) + (.40)(-.5) = .40
σ2rp = (.60)(1 - .40)2 + (.40)(-.5 - .40)2 = .54
σrp = .73
σ2rp = (.60)(1 - .40)2 + (.40)(-.5 - .40)2 = .54
σrp = .73
Learning Objectives
- Comprehend the idea of risk and return within financial markets.
- Examine the link between risk, return, and how diversifying investment portfolios affects them.