Question

A stock will provide a rate of return of either −25% or 38%.

If both possibilities are equally likely, calculate the stock's expected return and standard deviation. (Do not round intermediate calculations. Enter your answers as a whole percent.)

I know the answer for the stock's expected return which is 7% but I could not get the standard deviation

Answer 1

Expected return = 0.5*(-0.25) + 0.5*0.38

Expected return = -0.125 + 0.19

Expected return = 0.065 or 0.07 or 7%

Standard deviation = [0.5(-0.25 - 0.065)² + 0.5(0.38 - 0.065)²]^1/2

Standard deviation = [0.5*0.099225 + 0.5*0.099225]^1/2

Standard deviation = [0.049613 + 0.049613]^1/2

Standard deviation = 0.315 or 0.32 or 32%