Question

You have been given the following information:

  

State of   Economy	Probability of State of Economy	Rate of Return if State Occurs
Depression	.14	−.101
Recession	.21	.063
Normal	.49	.134
Boom	.16	.215

  

Calculate the expected return and standard deviation. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

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Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(A)^2* probability
Depression	0.14	-10.1	-1.414	-20.015	0.005608403
Recession	0.21	6.3	1.323	-3.615	0.000274433
Normal	0.49	13.4	6.566	3.485	0.000595116
Boom	0.16	21.5	3.44	11.585	0.002147396
	Expected return %=	sum of weighted return =	9.92	Sum=Variance 0=	0.00863
			Standard deviation of 0%	=(Variance)^(1/2)	9.29