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NEW QUESTION: 1
An investor faces the following investment scenarios:
Scenario Probability Return
Bull market 60% 30%
Neutral market 30% 7%
Market crash 10% -25%
The variance of the investor's rate of return is ________.
A. 6.17%%
B. 4.17%%
C. 17.6%%
D. 307.4%%
Answer: D
Explanation:
Explanation/Reference:
Explanation:
The expected return equals 0.6 * 30% + 0.3 * 7% + 0.1*(-25%) = 17.6%. To calculate the variance, an easy way is to first calculate the second moment, which is the expected value of the square of the return.
Thus, the second moment equals 0.6*[(30%)