Question

Consider the following information:

Rate of Return If State Occurs | |||||||||

State of Economy | Probability of State of Economy | Stock A | Stock B | ||||||

Recession | .18 | .07 | −.18 | ||||||

Normal | .55 | .10 | .11 | ||||||

Boom | .27 | .15 | .28 | ||||||

Calculate the expected return for the two stocks. **(Do not
round intermediate calculations. Enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)**

Expected return | |

Stock A | % |

Stock B | % |

Calculate the standard deviation for the two stocks. **(Do
not round intermediate calculations. Enter your answers as a
percent rounded to 2 decimal places, e.g.,
32.16.)**

Standard deviation | |

Stock A | % |

Stock B | % |

Answer #1

Stock A:

Expected Return = 0.18 * 0.07 + 0.55 * 0.10 + 0.27 * 0.15

Expected Return = 0.1081 or 10.81%

Variance = 0.18 * (0.07 - 0.1081)^2 + 0.55 * (0.10 - 0.1081)^2 +
0.27 * (0.15 - 0.1081)^2

Variance = 0.00077139

Standard Deviation = (0.00077139)^(1/2)

Standard Deviation = 0.0278 or 2.78%

Stock B:

Expected Return = 0.18 * (-0.18) + 0.55 * 0.11 + 0.27 *
0.28

Expected Return = 0.1037 or 10.37%

Variance = 0.18 * (-0.18 - 0.1037)^2 + 0.55 * (0.11 - 0.1037)^2
+ 0.27 * (0.28 - 0.1037)^2

Variance = 0.02290131

Standard Deviation = (0.02290131)^(1/2)

Standard Deviation = 0.1513 or 15.13%

Consider the following information:
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Recession
.10
.04
−
.17
Normal
.60
.09
.12
Boom
.30
.17
.27
a.
Calculate the expected return for Stocks A and B. (Do
not round intermediate calculations and enter your answers as a
percent rounded to 2 decimal places, e.g., 32.16.)
b.
Calculate the standard deviation for Stocks A and B.
(Do not round intermediate...

Consider the following information:
Rate of Return If State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Recession
.20
.08
−
.15
Normal
.50
.11
.14
Boom
.30
.16
.31
a.
Calculate the expected return for Stocks A and B. (Do
not round intermediate calculations and enter your answers as a
percent rounded to 2 decimal places, e.g., 32.16.)
b.
Calculate the standard deviation for Stocks A and B. (Do
not round intermediate...

Consider the following information:
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Recession
.10
.04
−
.17
Normal
.60
.09
.12
Boom
.30
.17
.27
a.
Calculate the expected return for Stocks A and B. (Do
not round intermediate calculations and enter your answers as a
percent rounded to 2 decimal places, e.g., 32.16.)
b.
Calculate the standard deviation for Stocks A and B.
(Do not round intermediate...

Consider the following information: Rate of Return If State
Occurs State of Probability of Economy State of Economy Stock A
Stock B Recession .17 .08 ? .12 Normal .58 .11 .17 Boom .25 .16 .34
Calculate the expected return for each stock. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 2 decimal places, e.g., 32.16.) Expected return Stock A % Stock
B % Calculate the standard deviation for each stock. (Do not round
intermediate calculations....

Consider the following
information:
Rate of Return if State Occurs
State of
Probability of
State
Economy
of
Economy
Stock A
Stock B
Recession
.23
.025
–.28
Normal
.58
.105
.18
Boom
.19
.170
.41
Requirement
1:
Calculate the expected return for the two stocks.
(Do not round intermediate calculations.
Enter your answers as a percentage rounded to 2
decimal places (e.g., 32.16).)
Expected
return
E(RA)
%
E(RB)
%
Requirement
2:
Calculate...

Consider the following information:
Rate of Return
if State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Recession
0.25
0.05
–0.11
Normal
0.55
0.12
0.16
Boom
0.20
0.16
0.36
a. Calculate the expected return for the two
stocks. (Do not round intermediate calculations. Enter your
answers as a percent rounded to 2 decimal places.)
b. Calculate the standard deviation for the two
stocks. (Do not round your intermediate calculations. Enter
your answers as a percent...

Consider the following information:
Rate of Return If State Occurs
State of
Probability
of
Economy
State of
Economy
Stock A
Stock B
Recession
.25
.04
–.17
Normal
.30
.10
.17
Boom
.45
.15
.37
a.
Calculate the expected return for the two stocks. (Do
not round intermediate calculations. Enter your answers as a
percent rounded to 2 decimal places. Omit the "%" sign in your
response.)
Expected return for
A
%
Expected return for
B
%
b.
Calculate...

Based on the following
information:
Rate of Return If State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Recession
.17
.06
–
.17
Normal
.50
.09
.12
Boom
.33
.14
.29
Calculate the expected return for the two stocks. (Do
not round intermediate calculations and enter your answers as a
percent rounded to 2 decimal places, e.g., 32.16.)
Expected
return
Stock A
%
Stock B
%
Calculate the standard deviation for...

Consider the following information:
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Stock C
Boom
.10
.35
.40
.27
Good
.60
.16
.17
.08
Poor
.25
−
.01
−
.03
−
.04
Bust
.05
−
.12
−
.18
−
.09
a.
Your portfolio is invested 30 percent each in A and C, and 40
percent in B. What is the expected return of the portfolio?
(Do not round...

Consider the following information:
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Stock C
Boom
.10
.35
.40
.27
Good
.60
.16
.17
.08
Poor
.25
−
.01
−
.03
−
.04
Bust
.05
−
.12
−
.18
−
.09
a.
Your portfolio is invested 30 percent each in A and C, and 40
percent in B. What is the expected return of the portfolio?
(Do not round...

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