Question

Given the following information, what is the standard deviation for this stock? State of Economy Probability Rate of Return Recession 0.10 0.18 Normal 0.50 0.09 Boom 0.40 -0.08

Answer 1

Standard Deviation of the stock is 9.43 %

Explanation:

Economy	Probability (a)	Rate of return (b)	(c) = a x b	Deviation from expected return d = b -E(R)	Squared Deviation e = d2	f = a x e
Recession	0.10	0.18	0.018	0.149	0.022201	0.0022201
Normal	0.50	0.09	0.045	0.059	0.003481	0.0017405
Boom	0.40	-0.08	-0.032	-0.111	0.012321	0.0049284
	Expected Return E(R)	0.031		Variance	0.008889
	Standard Deviation	0.094281493

Standard Deviation = √ Variance

                                = √ 0.008889 = 0.094281493 or 9.43 %