Given the following information, what is the expected rate of
return and the standard deviation for this stock?
| State of Economy | Probability of State of Economy | Rate of Return |
| Boom |
0.3 |
0.23 |
|
Normal |
0.65 | 0.14 |
| Recession |
0.05 |
-0.36 |
| State of Economy | Probability (P) | RETURN (Y) | (P * Y ) | P * (Y -Average Return of Y)^2 |
| Boom | 30% | 23 | 6.90 | 23.23 |
| Normal | 65% | 14 | 9.10 | 0.03 |
| Recession | 5% | -36 | -1.80 | 126.00 |
| TOTAL | 14.20 | 149.26 | ||
| Expected Return = | (P * Y) | |||
| 14.20% | ||||
| VARIANCE = | P * (Y -Average Return of Y)^2 | |||
| 149.2600 | ||||
| Standard Deviation = | Square root of (P * (Y -Average Return of Y)^2) | |||
| Square root of 149.26 | ||||
| 12.22 |
Get Answers For Free
Most questions answered within 1 hours.