The probability distribution for the rate of return on an investment is Rate of
ID: 3133416 • Letter: T
Question
The probability distribution for the rate of return on an investment is
Rate of Return
(In Percent) Probability
9.5 .1
9.8 .2
10.0 .3
10.2 .3
10.6
a. What is the probability that the rate of return will be at least 10%?
b. What is the expected rate of return?
c. What is the variance of the rate of return?
Explanation / Answer
P( return = 10.6) = 1 - 0.1 -0.2 -0.3 - 0.3 = 0.1
a)
P(the rate of return will be at least 10%) = P(return = 10.0) + P(return=10.2) +P(return= 0.6)= 0.3 + 0.3+0.1 = 0.7
b)
Expected return = 9.5*0.1 + 9.8*0.2 + 10.0*0.3 + 10.2*0.3 + 10.6*0.1 = 10.03
c)
Variance = ((9.5-10.03)^2)*0.1 + ((9.8-10.03)^2)*0.2 + ((10.0-10.03)^2)*0.3 + ((10.2-10.03)^2)*0.3 + ((10.6-10.03)^2)*0.1 = 0.0801