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In answering the following problems, it is given that the potential investment has the following range of possible outcomes and probabilities: 10% probability of a -20% return, 40% probability of a 15% return, 40% probability of a 25% return, and a 10% probability of a 50% return.

(a) find out the weighted mean of the probability distribution;
(b) find out the variance of the probability distribution;
(c) find out the standard deviation of the probability distribution.
(d) find out the coefficient of variation of the probability distribution.
(e) Would another investment having a coefficient of variation of .25 appear to offer a higher return per unit of risk?

 

Basic Finance, Finance

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