Question

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?

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