Question

Consider the following information:

  

		Rate of Return if State Occurs
State of Economy	Probability of State of Economy	Stock A	Stock B
Recession	0.10	0.06	-0.18
Normal	0.60	0.08	0.16
Boom	0.30	0.16	0.35

  

Required:

  

Given that the expected return for Stock A is 10.200%, calculate the standard deviation for Stock A. (Do not round your intermediate calculations.)

Answer 1

Ans 6.15

the standard deviation for Stock A is 6.15

Stock	Probability (P)	RETURN (Y)	(P * Y )	P * (Y -Average Return of Y)^2
Recession	10%	-6	-0.60	22.50
Normal	60%	8	4.80	0.60
Boom	30%	16	4.80	14.70
		TOTAL	9.00	37.80
Expected Return =		(P * Y)
		9.00%
VARIANCE =		P * (Y -Average Return of Y)^2
		37.8000
Standard Deviation =		Square root of (P * (Y -Average Return of Y)^2)
		Square root of 37.80
		6.15