Step 1/2

1. To calculate the expected rate of return, you'll multiply the rate of return for each scenario by its respective
probability of occurring, and then sum them up.

Expected Rate of Return = (Probability of Weak Demand*Rate of Return in Weak Demand) + (Probability of Below Average Demand*Rate of Return in Below Average Demand) + (Probability of
Average Demand*Rate of Return in Average Demand) + (Probability of Above Average Demand*Rate of Return in Above Average Demand) + (Probability of Strong Demand * Rate of Return in
Strong Demand)

Expected Rate of Return = (0.1 × 50%) + (0.2 × 5%) + (0.4 × 16%) + (0.2 × 25%) + (0.1 × 60%)

Expected Rate of Return = 0.05 + 0.01 + 0.064 + 0.05 + 0.06

Expected Rate of Return = 0.234 or 23.4%

So, the expected rate of return for New Wave is 23.4%.

Explanation:

let's break down the calculation step by step.

1. First, we have a set of different scenarios for the demand for New Wave's products: Weak, Below Average, Average, Above Average, and Strong.
2. For each of these scenarios, we are given both the probability of that scenario occurring and the rate of return associated with it.
3. To find the expected rate of return, we want to take into account all these scenarios, weighted by their probabilities. Essentially, we are calculating a weighted average of the rate of
return based on the likelihood of each scenario occurring.

Here's the breakdown of the calculation:

For Weak Demand:

1. Probability of Weak Demand = 0.1 (10%)
2. Rate of Return in Weak Demand = 50%
3. Contribution to Expected Rate of Return = (0.1 * 50%) = 0.05 or 5%
For Below Average Demand:
1. Probability of Below Average Demand = 0.2 (20%)
2. Rate of Return in Below Average Demand = 5%
3. Contribution to Expected Rate of Return = (0.2 * 5%) = 0.01 or 1%
For Average Demand:
1. Probability of Average Demand = 0.4 (40%)
2. Rate of Return in Average Demand = 16%
3. Contribution to Expected Rate of Return = (0.4 * 16%) = 0.064 or 6.4%
For Above Average Demand:
1. Probability of Above Average Demand = 0.2 (20%)
2. Rate of Return in Above Average Demand = 25%
3. Contribution to Expected Rate of Return = (0.2 * 25%) = 0.05 or 5%
For Strong Demand:
1. Probability of Strong Demand = 0.1 (10%)
2. Rate of Return in Strong Demand = 60%
3. Contribution to Expected Rate of Return = (0.1 * 60%) = 0.06 or 6%

Now, to find the overall expected rate of return, we simply sum up these contributions from each scenario:
Expected Rate of Return = 0.05 (Weak) + 0.01 (Below Average) + 0.064 (Average) + 0.05 (Above Average) + 0.06 (Strong) = 0.234 or 23.4%
So, the expected rate of return for New Wave is 23.4%. This means that, on average, the company can expect to earn a return of 23.4% on its investments in the given scenarios, taking
into account the probabilities associated with each scenario.

Step 2/2

2. To calculate the standard deviation of the rate of return, you'll first need to calculate the variance and then take the
square root of the variance. Here are the steps:
Step 1: Calculate the expected rate of return, which we've already calculated in the previous answer, and it's 23.4%.

Step 2: Calculate the squared difference between each rate of return and the expected rate of return, weighted by their respective probabilities, and then sum these squared differences.

Variance = (Probability of Weak Demand*(Rate of Return in Weak Demand - Expected Rate of Return)^2) + (Probability of Below Average Demand*(Rate of Return in Below Average Demand -
Expected Rate of Return)^2) + (Probability of Average Demand*(Rate of Return in Average Demand - Expected Rate of Return)^2) + (Probability of Above Average Demand*(Rate of Return in
Above Average Demand - Expected Rate of Return)^2) + (Probability of Strong Demand * (Rate of Return in Strong Demand - Expected Rate of Return)^2)

2 2 2
Variance = (0.1 × (50% − 23.4%) ) + (0.2 × (5% − 23.4%) ) + (0.4 × (16% − 23.4%) )+

2 2
(0.2 × (25% − 23.4%) ) + (0.1 × (60% − 23.4%) )

Variance =
2 2 2 2 2
(0.1 × (0.2646) ) + (0.2 × (−18.4) ) + (0.4 × (−7.4) ) + (0.2 × (1.6) ) + (0.1 × (36.6) )

Variance = 0.007004 + 0.067136 + 0.21808 + 0.0064 + 0.13356

Variance = 0.43218

Step 3: Calculate the standard deviation by taking the square root of the variance.
Stan dardDeviation = √ 0.43218

Stan dardDeviation = 0.6574

So, the standard deviation of the rate of return for New Wave is approximately 0.6574, or about 65.74%.

Explanation:
 Explanation:
The standard deviation is a measure of how much the actual rates of return for New Wave's products are expected to vary from their average (or expected) rate of return, which is 23.4%.

Here's a explanation:

Imagine that New Wave has different levels of demand for its products, ranging from weak to strong. Each level of demand has a different rate of return associated with it, and these rates
of return also come with probabilities of occurring.

Weak demand has a 10% chance of happening and offers a 50% rate of return.
Below average demand has a 20% chance and offers a 5% rate of return.
Average demand has a 40% chance and offers a 16% rate of return.
Above average demand has a 20% chance and offers a 25% rate of return.
Strong demand has a 10% chance and offers a 60% rate of return.

To assess how much these rates of return might vary from the expected 23.4%, we calculate the standard deviation.
The standard deviation, in this case, is about 0.6574 or 65.74%. This means that we expect the actual rates of return to be around 23.4%, but they could vary by approximately 65.74% in
either direction. So, New Wave's returns could be higher or lower than 23.4%, and this gives us an idea of how uncertain or risky the investment might be. A higher standard deviation
suggests greater uncertainty or variability in returns.

Final answer

1. Expected Rate of Return: The expected rate of return for New Wave is 23.4%.
2. Standard Deviation: The standard deviation of the rate of return for New Wave is approximately 65.74%.

I trust that these calculations will be beneficial to you. Your upvote is sincerely appreciated as it shows your support. Thank you!