Suppose your expectations regarding the stock market are as follows: State of the Economy Probability HPR...

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Question

Suppose your expectations regarding the stock market are as follows: State of the Economy Probability HPR...

Suppose your expectations regarding the stock market are as follows:

State of the Economy	Probability	HPR
Boom	0.3	42%
Normal growth	0.4	15
Recession	0.3	-18

What is the mean?

What is the Standard Deviation?

business finance

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Answer 1

Answer #1

Mean=Respective HPR*Respective probability

=(0.3*42)+(0.4*15)+(0.3*-18)=13.2%

probability	HPR	probability*(HPR-Mean)^2
0.3	42	0.3*(42-13.2)^2=248.832
0.4	15	0.4*(15-13.2)^2=1.296
0.3	-18	0.3*(-18-13.2)^2=292.032
		Total=542.16%

Standard deviation=[Total probability*(HPR-Mean)^2/Total probability]^(1/2)

=[542.16]^(1/2)

=23.28%(Approx).

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Answer 2

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