Set up a table giving the outcomes and probabilities

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Jatin Sharma, is the CEO of Sharma Portfolio Services. While examining for possible investment opportunities, he came across Frame Autoparts Limited (FAL), a manufacturer of high-quality auto parts. He predicts that if everything goes well there is 30% chance that FAL can provide 50% return in the coming year. On the other hand, if FAL keeps the present track there is 50% chance that it can provide 10 % return. However, there is 20% chance that investment in FAL can result in losses amounting to 70%.

(i) Set up a table giving the outcomes, and probabilities, for the anticipated return on investment in FAL.

(ii) Based upon your table in Part (i), find the expected value of the stock return and then explain what this value indicates.

(iii) Based upon your work in Part (i) and Part (ii), find the expected variance and standard deviation of the stock return and then interpret the result.

Reference no: EM132501858

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