Expected return and risk

Question

Universal Corp is planning to invest in a security that has several possible rates of return. Given the following probability distribution of returns, what is expected or return on the investment? Also, compute the standard deviations of the results. Please show how this is calculated with a BA II Plus financial calculator

Probability                  Return

0.10                               -10%

0.22                                 5%

0.30                                10%

0.40                               25%

Answer 1

Enter Data in Data Mode:

1. Press 2ND → DATA to enter data mode.
2. Enter x₁ = −10, then press ENTER, then enter y₁ = 0.1.
3. Enter x₂ = 5, then press ENTER, then enter y₂ = 0.22.
4. And so on for the last two pairs...

Compute Statistics:

1. Press 2ND → STAT.
2. Select 1-VAR (one-variable statistics).
3. Press ENTER.
4. Scroll to x̄ (mean) → This gives the expected return 13.1%.
5. Scroll to σx (population standard deviation) → This gives 11.3%.

Hope this was helpful.