Question

Based on the following information, what is the standard deviation of returns?

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
Recession	.21		-.113
Normal	.24		.128
Boom	.55		.238

Answer 1

Ans 13.69

Stock	Probability (P)	RETURN (Y)	(P * Y )	P * (Y -Average Return of Y)^2
Recession	21%	-11.3	-2.37	132
Normal	24%	12.8	3.07	0
Boom	55%	23.8	13.09	55
		TOTAL	13.79	188
Expected Return =		(P * Y)
		13.79%
VARIANCE =		P * (Y -Average Return of Y)^2
		187.54
Standard Deviation =		Square root of (P * (Y -Average Return of Y)^2)
		Square root of 188
		13.69