Expected rate of return and risk - B.J. Gautney enterprises is evaluating a security. One year treasury bills are currently paying 4.3 %. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security?
Probability/ return: 0.20/ -4%; 0.50/ 4%; 0.10/ 7%; 0.20/ 8%.
The investment's expected return is _% (round the two decimal places)
The investment's standard deviation is % (round the two decimal places)
Should Gautney invest in this security? (select the best choice below)
a) yes. B.J. Gautney Enterprices should invest in this investment because the return is lower than treasury bill and the level of risk higher than the treasury bill.
B) no. B.J. Gautney Enterprises should not invest in this investment because the return is lower than the treasury bill and the level of risk higher than the treasury bill.

[tex]\text{Investment's Expected Return} = (0.20 \times -0.04) + (0.50 \times 0.04) + (0.10 \times 0.07) + (0.20 \times 0.08) \\ \\ = (-0.008)+(0.02)+(0.007) + (0.016) \\ \\ \text{= 0.035}\\ \\ = 3.50\%}[/tex]

[tex]Var (r) = [(-0.04- 0.035)^2 * 0.2] + [(0.04 - 0.035)^2 * 0.5] + [(0.07 - 0.035)^2 * -0.10] + [(0.08 - 0.035)^2 * 0.20] \\ \\ = (-5*10^{-6} )+(1.25*10^{-5})+(-1.225*10^{-4}) + (4.05 \times 10^{-4}) \\ \\= 0.001665[/tex]

[tex]SD= \sqrt{Var} = \sqrt{0.001665}= 0.0408 \\ \\ =\mathbf{0.04 \ to \ 2 \ d.p}[/tex]

[tex]\text{B) no. B.J. Gautney Enterprises should not invest in this investment because the} \\ \\ \text{return is lower than the treasury bill and the level of risk higher than the treasury bill.}[/tex]