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If the economy booms, Meyer&Co. stock will have a return of 23.3 percent. If the economy...

If the economy booms, Meyer&Co. stock will have a return of 23.3 percent. If the economy goes into a recession, the stock will have a loss of 11.8 percent. The probability of a boom is 66 percent while the probability of a recession is 34 percent. What is the standard deviation of the returns on the stock?

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Answer #1
Step-1:Calcualation of expected return
Probability of Return
State of Economy State of Economy
a b a*b
Boom 66% 23.30% 15.38%
Recession 34% -11.80% -4.01%
Total 11.37%
Step-2:Calculation of Standard deviation
Standard Deviation = Varinace ^ (1/2)
= 2.7646% ^ (1/2)
= 16.63%
Working:
Calculation of Variance:
State of Economy State of Economy rate of Return Expected rate of return
a b c d=((b-c)^2)*a
Boom 66% 23.30% 11.37% 0.9400%
Recession 34% -11.80% 11.37% 1.8247%
Total 22.73% 2.7646%
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