Exhibit 1.

Chk question 34 in pdf

Outcome
Probability
Return
Recession
Expansions
Boom

25
40
35

(30)
50
55

4 . Given Exhibit 1, what is the expected return?

A. 13.00%

16.00 %

B. 15.96%

D 17.75 %

ANS: D
0.25*-0.3 + 0.4*0.15 + 0.35*0.55 = 0.1775

5. Given Exhibit 1, what is the expected variance?

A.
B.
C.
D.

957.38%
1058.69%
49.27%
32.54%

ANS: B
Outcome

Probability

Return

Return - E(r)

Recession

25%

-30%

-47.75%

2280.06%

Expansion

40%

15%

-2.75%

7.56%

Boom

35%

55%

37.25%

100%

(Return - (E(r))2

1387.56%
Variance

1058.69%

6. Given Exhibit 1, what is the expected standard deviation?

A.
B.
C.
D.

957.38%
1058.69%
49.27%
32.54%

ANS: D
Outcome

Probability

Return

Recession

25%

-30%

-47.75%

2280.06%

Expansion

40%

15%

-2.75%

7.56%

Boom

35%

55%

37.25%

100%

Return - E(r)

(Return - (E(r))2

1387.56%
Variance
1058.69%
Std Dev 32.54%