Question

# Consider the following information: Rate of Return if State Occurs State of Probability of State Economy...

 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 the standard deviation for the two stocks

Expected return=Respective return*Respective probability

A:

Expected return=(0.23*2.5)+(0.58*10.5)+(0.19*17)=9.90%(Approx)

 Probability Return Probability*(Return-Mean)^2 0.23 2.5 0.23*(2.5-9.895)^2=12.57778575 0.58 10.5 0.58*(10.5-9.895)^2=0.2122945 0.19 17 0.19*(17-9.895)^2=9.59139475 Total=22.381475%

Standard deviation=[Total Probability*(Return-Mean)^2/Total Probability]^(1/2)

=4.73%(Approx).

B:

Expected return=(0.23*-28)+(0.58*18)+(0.19*41)=11.79%

 Probability Return Probability*(Return-Mean)^2 0.23 -28 0.23*(-28-11.79)^2=364.146143 0.58 18 0.58*(18-11.79)^2=22.367178 0.19 41 0.19*(41-11.79)^2=162.112579 Total=548.6259%

Standard deviation=[Total Probability*(Return-Mean)^2/Total Probability]^(1/2)

=23.42%(Approx).

#### Earn Coins

Coins can be redeemed for fabulous gifts.