Question

What is the variance of the expected returns on this stock? State of the Economy Probability...

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%

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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 %
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