Question

**Question 2** (1 point)

Calculate the expected standard deviation on stock:

State of the economy | Probability of the states | Percentage returns | |
---|---|---|---|

Economic recession | 21% | 2% | |

Steady economic growth | 30% | 9% | |

Boom | Please calculate it | 11% |

*Round the answers to two decimal places in percentage
form*

Answer #1

First we find expected rate of return

Convert all probabilities to point form by dividing it by 100.

Probability of boom=100-30-21=49%=0.49

Expected rate of return=sum of (percentage returns*probability of states)=2%*0.21+9%*.3+11%*.49=8.51%

Now let's find variance, since standard deviation is square root of variance

Variance=sum of (((rate of return-expected return)^2)*corresponding probability)

=((2-8.51)^2)*0.21 + ((9-8.51)^2)*.3 + ((11-8.51)^2)*.49

=8.899 + 0.07203 + 3.038

=12.009%

Therefore standard deviation=√12.009=3.46%

Question 1 (1 point)
a.
Calculate the expected return on stock of Gamma Inc.:
State of the economy
Probability of the states
Percentage returns
Economic recession
15%
-5.2%
Steady economic growth
30%
2.7%
Boom
Please calculate it
13.3%
Round the answers to two decimal places in percentage
form.
b.
Calculate the expected standard deviation on stock:
State of the economy
Probability of the states
Percentage returns
Economic recession
26%
-10%
Steady economic growth
28%
10%
Boom
Please calculate it...

Question 1
a.
Calculate the expected return on stock of Gamma Inc.:
State of the economy
Probability of the states
Percentage returns
Economic recession
28%
-7.4%
Steady economic growth
35%
2.2%
Boom
Please calculate it
14.6%
Round the answers to two decimal places in percentage
form.
b.
Calculate the expected standard deviation on stock:
State of the economy
Probability of the states
Percentage returns
Economic recession
18%
2%
Steady economic growth
22%
8%
Boom
Please calculate it
14%

Calculate the expected standard deviation on stock:
State of the economy Probability of the states Percentage
returns
Economic recession 23% -5%
Steady economic growth 25% 10%
Boom Please calculate it 14%

Calculate the expected return on stock Gamma Inc.:
State of the economy Probability of the States percentage
returns
Economic recession 14% -5.2%
Steady economic growth 44% 2.2%
Boom please calculate it 10.5%
Round answer to two decimal places in percentage form

Calculate the expected return on stock of Gamma Inc.:
State of the economy
Probability of the states
Percentage returns
Economic recession
18%
-5.0%
Steady economic growth
49%
5.3%
Boom
Please calculate it
9.7%

Calculate the standard deviation of returns for Stock A and
Stock B.
State of Economy: (Recession 20%) (Normal
55%) (Boom 25%)
Stock A Return: (Recession 5%) (Normal
8%) (Boom 13%)
Stock B Return: (Recession -17%) (Normal
12%) (Boom 29%)
Possible Answers:
a. 23.26%
b. 15.43%
c. 14.94%
d. 4.04%
e. 2.76%

A.
Use the following information on states of the economy and stock
returns to calculate the expected return for Dingaling Telephone:
(Do not round intermediate calculations. Enter your answer
as a percent rounded to 2 decimal places. Omit the "%" sign in your
response.)
State of
Economy
Probability of
State of Economy
Security Return
If State Occurs
Recession
.40
–5.50
%
Normal
.40
11.00
Boom
.20
17.00
B.
Use the following information on states of the economy and stock
returns...

Use the following information on states of the economy and stock
returns to calculate the standard deviation of returns. (Do
not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places.)
State of Economy
Probability of
State of Economy
Security
Return
if State Occurs
Recession
.35
−9.00
%
Normal
.30
14.00
Boom
.35
23.00
Standard Deviation: ?%

Variance and standard deviation (expected). Hull Consultants,
a famous think tank in the Midwest, has provided probability
estimates for the four potential economic states for the coming
year. The probability of a boom economy is 14%, the probability of
a stable growth economy is 17%, the probability of a stagnant
economy is 49%, and the probability of a recession is 20%.
Calculate the variance and the standard deviation stock?
Forecasted Returns for Each Economy
Boom
Stable
Growth
Stagnant
Recession
Stock...

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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