Compute the Expected Return and Standard Deviation Given These Four

question 56

Multiple Choice

Compute the expected return and standard deviation given these four economic states, their likelihoods, and the potential returns:

• A) 9.5%; 32.43%
• B) 9.5%; 21.96%
• C) 9.5%; 18.97%
• D) 9.5%; 29.18%

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Definitions:

Annual Interest Rate

The annual interest rate is the percentage of interest that is charged or earned on an investment or loan over a one-year period.

Gross Investment

The total amount spent on purchasing or building new fixed assets and on replacing old assets, without deducting for depreciation.

Net Investment

The total amount spent on capital assets (like plant and equipment) minus depreciation, reflecting the actual increase in an entity's productive capacity.

Depreciation

The process of allocating the cost of tangible assets over their useful lives, reflecting the decrease in value of assets due to use, wear and tear, or obsolescence.