Respuesta :
The standard deviation of the rate of return on this investment----- 74.03%
Evaluating :
The probability distribution is ==
Probability Rate of return
0.42 100%
0.58 -50%
Mean = ( 0.42 ×100 ) + 0.58 ×( -50 )
= 42 - 29
= 13 %
Variance = [ 0.42 × ( 100 -13 )² ] +[ 0.58 × ( -50 - 13 )²
= 0.42 × 87² + 0.58 × 63²
= 0.42 × 7569 + 0.58 × 3969
= 3178.98 + 2302.02
= 5481
Standard deviation = [tex]\sqrt{5481}[/tex]
= 74. 03 %
Standard deviation of rate of return :
It tells how much data can deviate from the historical mean return of the investment. The higher the Standard Deviation, the higher will be the ups and downs in the returns. For example, for a fund with a 15 percent average rate of return and an SD of 5 percent, the return will deviate in the range from 10-20 percent.
Standard Deviation (SD) is a technique of statistics that represents the risk or volatility in investment. It gives a fair picture of the fund's return.
Learn more about rate of return :
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