Question

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).

Consider the following information: Probability of Rate of Return if State Occurs State of Economy Stock A Stock B .030 -.39 .59 110 .17 .280 .52 Economy Recession Normal Boom .24 .29 a. 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.) b. Calculate the standard deviation 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.) cercent rounded to be decimal places, dete a. Expected return of A Expected return of B Standard deviation of A Standard deviation of B

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).

Answer 1

The correct answer is :

a.	Expected return of A	11.97	%
	Expected Return of B	16.59	%
b.	Standard deviation of A	7.97	%
	Standard deviation of B	32.34	%

Notes:

For Stock A:

State of Economy	Probability	Expected Stock Return on Stock	Expected Return ( Probability * Expected Stock Return)
Recession	0.24	0.03	0.0072
Normal	0.59	0.11	0.0649
Boom	0.17	0.28	0.0476
	Expected Return		0.1197
	Expected Return   %		11.97

State of Economy	Probability	Probable Return	Deviation ( Probable Return- Expected Return)	Deviation Squared	Product ( Deviation Squared* Probability)
Recession	0.24	3.00	-8.97000	80.461	19.31062
Normal	0.59	11.00	-0.97000	0.941	0.55513
Boom	0.17	28.00	16.03000	256.961	43.68335
			Variance ( Sum of Product)		63.55
			Standard Deviation (Square root of Variance)		7.97

For Stock B:

Probability	Expected Stock Return on Stock	Expected Return ( Probability * Expected Stock Return)
0.24	-0.39	-0.0936
0.59	0.29	0.1711
0.17	0.52	0.0884
Expected Return		0.1659
Expected Return   %		16.59

Probability	Probable Return	Deviation ( Probable Return- Expected Return)	Deviation Squared	Product ( Deviation Squared* Probability)
0.24	-39.00	-55.59000	3090.248	741.65954
0.59	29.00	12.41000	154.008	90.86478
0.17	52.00	35.41000	1253.868	213.15758
		Variance ( Sum of Product)		1,045.68
		Standard Deviation (Square root of Variance)		32.34