Question

You believe Orange, Inc. stock has a 20% chance of making 11%, a 30% chance of making 16% and a 50% chance of losing 6%. What is the standard deviation of Orange, Inc. stock return?

A. 4.36%

B. 10.15%

C. 13.73%

D. 32.82%

Answer #1

Given about Orange Inc, its probability and expected return.

Values are solved in the table below:

Standard deviation = sqrt(Σ[(r^2)*p] - [Σ(r*p)]^2)

Probability(p) | return( r) | r^2 | (r^2)*p | p*r |

0.2 | 11% | 0.0121 | 0.002420 | 0.022 |

0.3 | 16% | 0.0256 | 0.007680 | 0.048 |

0.5 | -6% | 0.0036 | 0.001800 | -0.03 |

Sum | 0.011900 | 0.04 |

So, standard deviation = SQRT(0.0119 - 0.04^2) = SQRT(0.0103) = 10.15%

So, standard deviation of Orange, Inc. stock return is 10.15%

Option B is correct.

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