Question

A project will double your investment in one year with probability 0.35, otherwise you'll lose half of your investment. What is the standard deviation of this investment

Answer 1

50.59%

Step-by-step explanation:

the project will have two outcomes:

35% chance of yielding 2

65% chance of yielding 0.5

the expected value = 1.025

the variance = {[0.35 x (2 - 1.205)²] + [0.65 x (0.5 - 1.205)²]} / 2 = (0.3327 + 0.1792) / 2 = 0.25595

the standard deviation = √0.25595 = 0.5059 = 50.59%