Question

calculate the standard deviation of the returns.

2. Stock A has the following returns for various states of the economy: State of the Economy Recession Below Average Average Above Average Boom Probability 9% 16% 51% 14% 10% Stock A's Return -72% -15% 16% 35% 85%

Answer 1

State of the Economy	Probability (P)	RETURN (Y)	(P * Y )	P * (Y -Average Return of Y)^2
Recession	9%	-72	-6.48	645.36
Below Average	16%	-15	-2.40	122.59
Average	51%	16	8.16	5.62
Above Average	14%	35	4.90	69.75
Boom	10%	85	8.50	523.02
		TOTAL	12.68	1366.34
Expected Return =		(P * Y)
		12.68%
VARIANCE =		P * (Y -Average Return of Y)^2
		1366.3376
Standard Deviation =		Square root of (P * (Y -Average Return of Y)^2)
		Square root of 1366.3376
		36.96