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.