Assume the Probability of a Pessimistic, Most Likely and Optimistic

question 78

Multiple Choice

Assume the probability of a pessimistic, most likely and optimistic state of nature is .25, .45 and .30, and the returns associated with those states of nature are 10%, 12%, and 16% for asset X. Based on this information, the expected return and standard deviation of return are:

• A) 12.0% and 4.0%
• B) 12.7% and 2.3%
• C) 12.7% and 4.0%
• D) 12.0% and 2.3%

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Definitions:

Linear Relationship

A relationship style between two variables in which alterations in one variable correspond with comparative changes in the other.

Sum Of Squares

A statistical measure that quantifies the dispersion or variation within a data set, typically used in variance and regression analysis.

Regression SSR

The sum of squares due to regression, indicating the explained variance by the regression model in the data.

Error SSE

The sum of squared errors in statistical analysis, indicating the discrepancy between observed and predicted values.