You've estimated the following expected returns for a stock, depending on the strength of the economy:
|State (s)||Probability||Expected return|
1. What is the expected return for the stock?
2. What is the standard deviation of returns for the stock?
1. Expected return = Respective probabilities of states * expected return of states
Answer = 6.70%
2. Variance = Product of Deviation Squared and Probability
|State of Economy||Probability||Probable Return||Deviation ( Probable Return- Expected Return)||Deviation Squared||Product ( Deviation Squared* Probability)|
|Variance ( Sum of Product)||36.01|
Standard Deviation = Square root of Variance
Answer = 6.00%
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