Question

Returns on JQH, Inc. are forecast to be the following: State                       Probability        &n

Returns on JQH, Inc. are forecast to be the following:

State                       Probability             Return

Boom                         0.25                      30%

Normal                      0.65                       15%

Bust                            0.10                       -10%

What is the standard deviation of this company’s stock?

Homework Answers

Answer #1

Ans 10.83

State Probability (P) RETURN (Y) (P * Y ) P * (Y -Average Return of Y)^2
Boom 25% 30 7.50 47.2656
Normal 65% 15 9.75 1.0156
Bust 10% -10 -1.00 68.9063
TOTAL 16.25 117.1875
Expected Return = (P * Y)
16.25%
VARIANCE = P * (Y -Average Return of Y)^2
117.1875
Standard Deviation = Square root of (P * (Y -Average Return of Y)^2)
Square root of 117.1875
10.83
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