Economics rate of return and risk. Please help me understand?

Question

Carter, Inc., is evaluating a security. One-year Treasury bills are currently paying 9.1 percent. Calculate the investment’s expected return and its standard deviation. Should Pritchart invest in this security?


Probability-------Return

.15------6%
.30-------9%
.40-------10%
.15--------15%

Answer 1

Best Answer - Chosen by Asker

Expected return is the sum of the probabilities vs. the 9.1 T-bill.

.15 * .06 = .009
.30 * .09 = .027
.40 * .10 = .040
.15 * .15 = .0225

.009 + .027 + .04 + .0225 = .0985 or 9.85%

Therefore, you should purchase the security instead of the T-Bill...

(Ignoring tax effects of course :-) )

Regards,

Mysstere

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Thank you for your help