Question

calculate the expected return and standard deviation of the following stock

	return	probability
good	18	1/6
average	12	1/3
bad	6	1/2

show calculation too

Answer 1

Calculation of Expected return :

Probability (1)	Return (2)	Expected return (3) (1*2)
1/6	18	3
1/3	12	4
1/2	6	3
	Expected return	10

Calculation of Standard deviation:

Probability (1)	Return-Expected return (2)	Square of Return-Expected return (3)	Variance (4) (1*3)
1/6	18-10 = 8	(8)^2 = 64	10.67
1/3	12-10 = 2	(2)^2=4	1.33
1/2	6-10 = -4	(-4)^2=16	8
		Varinace	20

Standard deviation = Square root of Variance

= Square root of 20

= 4.47