Nikul Maria recently invested in real estate with the intention of selling the property one year from today. She has modeled the returns onthat investment based on three economic scenarios. She believes that if the economy.stays healthy, then her investment will generatea 30 percent return. However, if the economy softens, as predicted, the return will be 10 percent, while the return will be -25 percent ifthe economy slips into a recession. If the probabilities of the healthy, soft, and recessionary states are 0.6, 0.2, and 0.2, respectively,then what are the expected return and the standard deviation of the return on Maria's investment? (Round intermediatecalculations to 5 decimal places, e.g. 0.07680, expected return to 2 decimal places, e.g. 12.25% and standard deviation to 3decimal places, e.g. 0.125.)Expected returnStandard deviation%

Step 1:Given:Probability of healthy economy (p₁) = 0.6Probability of soft economy (p₂) =…

Answered: Maria recently invested in real estate…

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

Section: Chapter Questions

Problem 1PS

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