A security has the following expected returns and probabilities of occurrence: Return Probability 11% 20% 14% 50% 15% 30% What is the standard deviation of the returns? A) 0.02%. B) 1.42%. C) 1.74%. D) 2.00%.
B
I get E(X) = 13.7 then SQRT( SUM( (Xi-E(X))^2) / n ) == > 1.738 I’m getting ©
charu_mulye Wrote: ------------------------------------------------------- > I get E(X) = 13.7 > > then SQRT( SUM( (Xi-E(X))^2) / n ) == > 1.738 > > I’m getting © except, you have probabilities to weight the (Xi-E(X))^2), and you don’t get to divide it by n to get the average B is the answer
Thanks…wot a silly mistake…
E(X) = .11*.2 + .14*.5 + .15*.3 = .137 STD = .2 * (.137-.11)^2 + .5 * (.137-.14)^2 + .3 * (.137-.15)^2 I got 1.46
you know that sd = sqrt(variance) and variance = E[X²] - E[X]² this is easier to compute, imho.
Long hand paper and pencil,came out as 1.417745,I will go with B