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?
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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