Expected Return: Discrete Distribution
- Calculate the stock's expected Return and standard deviation.
State | Probability of State (P) |
Stock X (R) | P*R | P*R^2 |
Weak | 10% | -35% | -3.50% | 1.23% |
Below average | 20% | -7% | -1.40% | 0.10% |
average | 40% | 8% | 3.20% | 0.26% |
above average | 20% | 25% | 5.00% | 1.25% |
strong | 10% | 60% | 6.00% | 3.60% |
Sum | 9.30% | 6.43% |
Expected return = sum of (probability of state * return of state)
= 9.3%
E(X^2) = sum of (probability of state * return of state^2)
= 6.43%
variance = E(X^2) - (E(X))^2
= 6.43% - (9.3%)^2
= 0.055651
Standard deviation = sqrt(variance)
= sqrt(0.055651)
= 23.59%
Expected Return: Discrete Distribution - Calculate the stock's expected Return and standard deviation. eBook Expected Return:...
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