Quantitative Problem: You are given the following probability distribution for CHC Enterprises:
State of Economy 
Probability 
Rate of return 

Strong 
0.20 
20 
% 
Normal 
0.50 
10 

Weak 
0.30 
4 
What is the stock’s STD DEV?
Calculation of Expected return:
Particulars  Probability (1)  Return (2)  Expected return (3) (1*2) 
Strong  0.2  20%  4% 
Normal  0.5  10%  5% 
Weak  0.3  4%  1.2% 
Expected return  7.8% 
Calculation of Standard deviation:
Particulars  Probability (1)  ReturnExpected return(2)  Square of ReturnExpected return (3)  Variance (4) (1*3) 
Strong  0.2  20%7.8%=12.2% or 0.122  (0.122)^2 = 0.0149  0.00298 
Normal  0.5  10%7.8%=2.2% or 0.022  (0.022)^2 = 0.0005  0.00025 
Weak  0.3  4%7.8%=11.8% or 0.118  (0.118)^2=0.0139 
0.00417 
Variance  0.0074 
Standard deviation = Square root of Variance
= Square root of 0.0074
= 0.086 or 8.6%
Standard deviation = 8.6%
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