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Stevewh
Stevewh, Bachelor's Degree
Category: Math Homework
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Experience:  Statistics degree
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consider the following probability distribution of returns

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consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine:
State of the Economy Probability of Occurrence Rate of Return
very poor 0.10 -10.0 %
poor 0.20 0.0
Average 0.40 10.0
Good 0.20 20.0
verygood 0.10 30.0
(a) what is the expected rate of return on the project?
(b) what is the project's standard deviation of returns?
(c) what is the project's coefficient of variation (CV) of returns?
(d) what type of risk does the standard deviation and CV measure?
(e) In what situation is this risk relevant?
need this by 8 pm today 10.00 tip
Hi,

I can do a) b) and c), is that useful to you?

Steve
Customer: replied 6 years ago.
yes,if you explain d,e
Oh sorry but i can´t do d) and e) i will opt out this question.

Maybe another expert can do all the parts

Steve
Customer: replied 6 years ago.
go ahead and answer
Ok

a) expected return = E(X) = -10(0.1)+0(0.2)+ 10(0.4)+20(0.2)+30(0.1) = 10

Answer: E(x) = 10%


b) standard deviations of returns is : sd(x)=√Var(x)

Var(x)= E(x^2)-E^2(x)

E(x^2)= (-10)^2(0.1)+0^2(0.2)+ 10^2(0.4)+20^2(0.2)+30^2(0.1) = 220

Var(x)=220-(10)^2 = 120

Answer: sd(x) = 10.95%

c)

CV(x) = sd(x)/|E(x)| = 10.95/10 = 1.095

Answer: CV = 1.095

Thanks

Steve
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