A calculate the expected rate of return round to 2 decimal p

A) calculate the expected rate of return (round to 2 decimal places)

B) Calculate the variance and the standard deviation (round to 2 decimal places)

Solution

(a) expected rate= E(X)=x*f(x)

=0.21*(-0.12)+0.38*0.08+0.41*0.2

=0.0872

i.e. 8.72%

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(b)E(X^2)=x^2*f(x)

=0.21*(-0.12)^2+0.38*0.08^2+0.41*0.2^2 =0.021856

Variance= E(X^2) - [E(X)]^2 =0.021856-0.0872^2 = 0.01425216

i.e. 1.43%

standard deviation = sqrt(0.01425216) =0.1193824

i.e.11.94%