Question

A stock will provide a rate of return of either ?29% or 34%.

If both possibilities are equally likely, calculate the stock's expected return and standard deviation. (Do not round intermediate calculations. Enter your answers as a whole percent.)

  

Expected Return	????	%
Standard Deviation	????	%

Answer 1

(a) Calculation of expected return of stocks:
	Probability(a)	Return(%) (b)	(a)*(b)
	0.5	-29	-14.5
	0.5	34	17
	Expected Return		2.5
Therefore expected return of stock is 3%
(b) Calculation of standard deviation of stock:
	Probability(a)	Return	(return- expected return)	(return- expected return)^2 (b)	(a*b)
	0.5	-29	-32	1024	512
	0.5	34	31	961	480.5
					992.5
Standard deviation of stock= (992.5)^1/2= 32%
Note: Expected return for calculation of standard deviation is taken as a rounded off figure.