Question

.Calculate mean and standard deviation for the following asset. Please show all work.

Economic State                           Return                        Probability

Recession                                      -20%                           20%

Normal                                          18%                             50%

Boom                                            35%                             30%

Answer 1

Answer :

Calculation of mean :

Economic state	Return	Probability	Expected value
A	B	C	D = B * C
Recession	-20%	20%	-4.00%
Normal	18%	50%	9.00%
Boom	35%	30%	10.50%
		Mean =>	15.50%

Calculation of Standard deviation :

Economic state	Return	Probability	Expected value
A	B	C	D = C * ( B - Mean )^2
Recession	-20%	20%	2.5205%
Normal	18%	50%	0.03125%
Boom	35%	30%	1.14075%
		Variance =>	3.6925%
		Std. deviation => [ Square root (variance ) ]	19.22%