11.06 Calculating Returns and Standard Deviations Based on the following information, calculate the expected return and standard deviation | ||||||
Main Page | ||||||
State of Economy | Probability of State of Economy | Rate of Return if State Occurs | ||||
Depression | 0.150 | -10.50% | ||||
Recession | 0.300 | 5.90% | ||||
Normal | 0.450 | 13.00% | ||||
Boom | 0.100 | 21.10% | ||||
Expected Value | ||||||
Variance | ||||||
Standard Deviation |
Expected value = 0.15*-10.5% + 0.3*5.9% + 0.45*13% + 0.1*21.1%
= 8.155%
Variance = (0.15)*(-0.105-0.08155)^2 + (0.3)*(0.059-0.08155)^2 + (0.45)*(0.13-0.08155)^2+(0.1)*(0.211-0.08155)^2
= 0.0081047475
Standard deviation = square root of variance = 0.0081047475^0.5
= 0.0900264 or 9.00264%
11.06 Calculating Returns and Standard Deviations Based on the following information, calculate the expected return and...
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