Expected Return: K = S Ki*Pr

Asset F

Rate of Return Probability Weighted Value

Ki Pr Ki x Pr
0.40 0.10 0.04
0.10 0.20 0.02
0.00 0.40 0.00
-0.05 0.20 -0.01
-0.10 0.10 -0.01
0.04
 Expected Return: K = S Ki*Pr
Asset G

Rate of Return Probability Weighted Value

Ki Pr Ki x Pr
0.35 0.40 0.14
0.10 0.30 0.03
-0.20 0.30 -0.06
0.11
 Expected Return: K = S Ki*Pr
Asset H

Rate of Return Probability Weighted Value

Ki Pr Ki x Pr
0.40 0.10 0.04
0.20 0.20 0.04
0.10 0.40 0.04
0.00 0.20 0.00
-0.20 0.10 -0.02
0.10

Req. b
Asset G Provides the largest expected return.
Standard Deviation: sk = S (Ki- K)2 x Pri
Asset F

(Ki K) (Ki K)2 Pri s2

0.40 0.04 = 0.36 0.1296 0.10 0.01296

0.10 0.04 = 0.06 0.0036 0.20 0.00072
0.00 0.04 = -0.04 0.0016 0.40 0.00064
-0.05 0.04 = -0.09 0.0081 0.20 0.00162
-0.10 0.04 = -0.14 0.0196 0.10 0.00196
0.01790

sk 0.1338
 Asset G
(Ki K) (Ki K)2 Pr s2
0.35 0.11 = 0.24 0.0576 0.40 0.02304
0.10 0.11 = -0.01 0.0001 0.30 0.00003
-0.20 0.11 = -0.31 0.0961 0.30 0.02883
0.05190
sk 0.2278
 Asset H
(Ki K) (Ki K)2 Pri s2
0.40 0.10 = 0.30 0.0900 0.10 0.009
0.20 0.10 = 0.10 0.0100 0.20 0.002
0.10 0.10 = 0.00 0.0000 0.40 0.000
0.00 0.10 = -0.10 0.0100 0.20 0.002
0.20 0.10 = -0.30 0.0900 0.10 0.009
0.022
sk 0.1483

Based on standard deviation, asset G appears to have the greatest risk,

but it must be measured against its expected return with the statistical
measures coefficient of variation, since the three assets have differing
expected values. An incorrect conclusion about the risk of the assets could
be drawn using only the standard deviation.