Question

Following are three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast growth 0.17 21 % Slow growth 0.50 10 Recession 0.33 –21 Determine the standard deviation of the expected return. (Round your answer to 2 decimal places.)

Standard deviation: ____%

Answer 1

The correct answer is 16.36%

Note :

	Probability	Stock Return	Expected Return ( Probability * Expected Return)
fast Growth	0.17	0.21	0.04
Slow growth	0.50	0.10	0.05
Recession	0.33	(0.21)	-0.07
	Expected Return		0.0164
	Expected Return   %		1.64
	Probability	Probable Return	Deviation ( Probable Return- Expected Return)	Deviation Squared	Product ( Deviation Squared* Probability)
fast Growth	17%	21.00	19.36	374.8096	63.717632
Slow growth	50%	10.00	8.36	69.8896	34.9448
Recession	33%	-21.00	-22.64	512.5696	169.147968
			Variance		267.8104
			Standard Deviation (Square root of Variance)		16.36