M&B3 3rd Edition by Dean Croushore

Exercise 8

Suppose that a security costs $3,000 today and pays off some amount b in one year. Suppose that b is uncertain according to the following table of probabilities:
a Calculate the return (in percent) for each value of b. ( Note: You may just calculate the total return and not worry about how this is split between current yield and capital-gains yield.)
b Calculate the expected return (in percent).
c Calculate the standard deviation of the return.
d Suppose that an investor has a choice between buying this security or purchasing a different security that also costs $3,000 today but pays off $3,300 with certainty in one year. How is an investor's choice of which security to purchase related to his degree of risk aversion