Question
Suppose your expectations regarding the stock market are as follows: State of the Economy Probability HPR...
Suppose your expectations regarding the stock market are as follows:
| State of the Economy | Probability | HPR | |
| Boom | 0.3 | 44% | |
| Normal growth | 0.6 | 22 | |
| Recession | 0.1 | -15 | |
Use above equations to compute the mean and standard deviation of
the HPR on stocks. (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
mean?
standard deviation?
Homework Answers
Answer #1
Calculation of Mean & Standard Deviation of HPR
| Scenario | Probability | HPR | HPR * Probability | Deviation (D) | D^2 | D^2 * Probability |
| Boom | 0.3 | 44% | 0.132 | 0.191 | 0.03648100 | 0.01094430 |
| Normal Economy | 0.6 | 22% | 0.132 | -0.029 | 0.00084100 | 0.00050460 |
| Recession | 0.1 | -15% | -0.015 | -0.399 | 0.15920100 | 0.01592010 |
| Total | 0.2490 | Total | 0.02736900 |
A) Calculation of Mean.
Mean = 0.2490 or 24.9%
B) Calculation of Standard Deviation
Where D (Deviation) = HPR - Mean
0.165436 or 16.54%
Standard Deviation = 16.54%
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