Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firm there is a 70% probability that the firm will have a 20% return and a 30% probability that the firm will have a -30% return.(a) What is the expected return for an individual firm?
(1) 14% (2) 3% (3) 5% (4) -5%
(b) The standard deviation for the return on an individual firm is closest to:
(1) 23% (2) 5.25% (3) 15% (4) 10%

Based on the probabilities and returns, the following are true:

Expected return is the weighted average of probabilities and returns:

= (Probability of payoff x Payoff) + (Probability of second payoff x Second payoff)

= (70% x 20%) + (30% x -30%)

= 5%

Standard deviation requires that variance is calculated first:

Variance = ∑((Probability x Difference between return and expected return) )²

= ((70% x (0.2 - 0.05)) + ( 30% x (-30% -0.05)))²

= 0.0525

Standard deviation:

= √Variance

= √0.0525

= 0.023

= 23%

Find out more on expected return at link.

a. (3) 5%

b. (1) 23%

Explanation:

The computation is shown below:

a. Expected return is

= 70% ×  20% + 30% × (-30%)

= 5%

We simply multiplied the probability with its return

b. And for computing the standard deviation first we have to find out the variance which is shown below:

Variance = 70% × (0.20 - 0.05)^2 + 30% ×  (-0.30 - 0.05)^2

= 0.0525

Now

Standard Deviation is

= (0.0525)^(1 ÷ 2)

= 23%

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hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi