Question

Consider the following information: Probability of State of Economy Rate of Return of State Occurs Stock A Stock B 23 050 -43 Economy Recession Normal Boom 130 320 56 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.... 32.16.) a. Expected return of A Expected return of B Standard deviation of A Standard deviation of B T

Answer 1

Stock A probability 0.05 return 0.23 0.63 0.14 Expected return Return-Expected return variance prob*return Deviation Deviation^2 D^2*probability 0.0115 -0.0882 0.007779 0.001789225 0.13 0.0819 -0.0082 0.000067 0.00004236 0.32 0.0448 0.1818 0.033051 0.0046272 0.1382 0.00645876 Expected return Standard deviation 0.1382 0.080366411 13.82% 8.04% 0.00645876^(1/2) Stock B probability return 0.23 0.63 0.14 Expected return Return-Expected return variance prob*return Deviation Deviation^2 D^2* probability -0.43 -0.0989 -0.6174 0.381183 0.087672035 0.33 0.2079 0.1426 0.020335 0.01281090 0.56 0.0784 0.3726 0.138831 0.0194363 0.1874 0.11991924 Expected return Standard deviation 0.1874 0.346293575 18.74% 34.63% 0.11991924^(1/2)