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  • Llagas 12 Worksheet 1

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    Angela Fye Llagas
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    This document provides an example of calculating the expected return and standard deviation for an investment option. It shows the possible returns and their probabilities for investing in Wayne Industries. The expected return is calculated as 0.19 or 19% by taking a weighted average of the returns based on their probabilities. The standard deviation is calculated as 0.0627 or 6.27% by taking the square root of the weighted sum of the squared deviations of each return from the expected return. These metrics can help the investor understand the risk and potential reward of the investment.

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    This document provides an example of calculating the expected return and standard deviation for an investment option. It shows the possible returns and their probabilities for investing in Wayne Industries. The expected return is calculated as 0.19 or 19% by taking a weighted average of the returns based on their probabilities. The standard deviation is calculated as 0.0627 or 6.27% by taking the square root of the weighted sum of the squared deviations of each return from the expected return. These metrics can help the investor understand the risk and potential reward of the investment.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    2 views2 pages

    Llagas 12 Worksheet 1

    Uploaded by

    Angela Fye Llagas
    This document provides an example of calculating the expected return and standard deviation for an investment option. It shows the possible returns and their probabilities for investing in Wayne Industries. The expected return is calculated as 0.19 or 19% by taking a weighted average of the returns based on their probabilities. The standard deviation is calculated as 0.0627 or 6.27% by taking the square root of the weighted sum of the squared deviations of each return from the expected return. These metrics can help the investor understand the risk and potential reward of the investment.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    Llagas, Angela Fye C.

    ABMT201A

    Managing Risks
    Investments

    Directions: Solve the following items. Write your answers and complete solutions on the space
    provided. (2 items x 10 points)

    1. Ted Pascual is thinking of investing in Wayne Industries. This table shows the possible
    returns for each of his investment options and their respective probabilities:

    Return, Probability,

    𝑅𝑅1 𝑃𝑃1
    10% 20%
    15% 25%
    20% 30%
    25% 15%
    30% 10%

    Compute for the following:


    • Expected Return
    E ( R )=R 1 P1 + R2 P 2+ … R n P n

    E ( R )= ( 0.1 )( 0.2 )+ ( 0.15 ) ( 0.25 ) + ( 0.2 ) ( 0.3 ) + ( 0.25 ) ( 0.15 ) +(0.3)(0.1)

    E ( R )=0.185∨0.19
    • Standard Deviation

    √
    n
    σ= ∑ ( Ri−R )2 (Pi)
    i=1

    σ =√ ( 0.1−0.19 ) ( 0.2 ) + ( 0.15−0.19 ) ( 0.25 ) + ( 0.2−0.19 ) ( 0.3 ) +¿ ( 0.25−0.19 ) ( 0.15 )+ ( 0.3−0.19 ) (0.1)
    2 2 2 2 2

    σ =√ 0.0038
    σ =0.0627∨6.27 %

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