puting the standard deviation for an individual​ investment)  James Fromholtz is considering whether to invest in a newly formed investment fund. The​ fund's investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the​ fund's performance will hinge on how the national economy performs in the coming year. ​ Specifically, he suggested the following possible​ outcomes:   LOADING... .   a.  Based on these potential​ outcomes, what is your estimate of the expected rate of return from this investment​ opportunity? b.  Calculate the standard deviation in the anticipated returns found in part a. c.  Would you be interested in making such an​ investment? Note that you lose all your money in one year if the economy collapses into the worst state or

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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 ​(Computing the standard deviation for an individual​ investment)  James Fromholtz is considering whether to invest in a newly formed investment fund. The​ fund's investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the​ fund's performance will hinge on how the national economy performs in the coming year. ​ Specifically, he suggested the following possible​ outcomes:  
LOADING...
.
 
a.  Based on these potential​ outcomes, what is your estimate of the expected rate of return from this investment​ opportunity?
b.  Calculate the standard deviation in the anticipated returns found in part
a.
c.  Would you be interested in making such an​ investment? Note that you lose all your money in one year if the economy collapses into the worst state or you double your money if the economy enters into a rapid expansion.
 
State of Economy
Probability
Fund Returns
Rapid expansion and recovery
15​%
 
100​%
 
Modest growth
30​%
 
30​%
 
Continued recession
40​%
 
20​%
 
Falls into depression
15​%
 
−100​%
 
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