Question

What is the variance of the expected returns on this stock?

State of the Economy	Probability	Expected Return
Boom	.70	24	%
Recession	.30	6	%

Multiple Choice

• 48.75%

• 61.53%

• 70.03%

• 68.04%

• 52.75%

Answer 1

Answer = 68.04%

Note:

State of Economy	Probability	Expected Stock Return on Stock	Expected Return ( Probability * Expected Stock Return)
Boom	0.70	0.240	0.1680
Recession	0.30	0.060	0.0180
	Expected Return	0.1860
	Expected Return   %	18.60 %

State of Economy	Probability	Probable Return	Deviation ( Probable Return- Expected Return)	Deviation Squared	Product ( Deviation Squared* Probability)
Boom	0.70	24.00	5.400	29.160000	20.4120
Recession	0.30	6.00	-12.600	158.760000	47.6280
			Variance ( Sum of Product)	68.04 %