Question: A company is evaluating a security as a standalone investment. The risk-free rate of return is 5.1% per annum. The probability distribution of annual returns for the security is given in the table below:
|
Return
|
Probability
|
|
-2%
|
0.15
|
|
5%
|
0.3
|
|
7%
|
0.4
|
|
10%
|
0.15
|
(a) Calculate the expected return of the security.
(b) Calculate risk (standard deviation) of the security.
(c) Explain whether the company should invest in this security.