Buxton Corporation is planning to invest in a security that has several potential rates of return. Using the following probability distribution of returns during different states of the economy, what is the expected rate of return on this investment? In addition, compute the standard deviation of the returns (σ). Finally, briefly explain what these numbers represent.
Probability Expected Return
0.10 -10%
0.20 5%
0.30 10%
0.40 25%