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Varlance and standard deviation (expected). Hull Consultants, a famous think tank in the Midwest, has provided probablity estimates for the four potontial economic states for the coming year. The probability of a boom o on my is 11%, the probabity of a stable gr thoon rys 18s,tepotablityofastagant oor my is 46% and t e protablity of a recession is 25% Caiculanto vanance and he star da ddruson of the three investments: stock, corporate bond, and govemment bond. If the estimates for both the probablities of the economy and the retuns in each state of the economy are comect, which investment would you choose, oonsidering both risk and retun? Forecasted Returns for Each Economy Stable Boom Growth 12% 9% 8% 5% 3% Corporate bond Goverrment bond 7% What is the variance of the stock investment %(Round to sik decimal places.) What is the standard deviation of the stock investment? (Round to two decimal places) What is the variance of the corporate bond invesiment? (Round to six decimal places ) What is tre standand deviation of the corporale bond investment? Click to select your answers) Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for Variance and standard deviation (expected). Hul boom oconomy is 11%, the three investments: stock, corporate bond, and govemment bond. I choose, considering both risk and retum? the probability of a stable growth economy is 18%, the probabilty of a stagnant economy is 46%, and the probability of a of the economy and the returns in each state of the economy are co the estimates for both the probables Forecasted Returns for Each Economy Boom Stock 23% 12% 14% Corporate bond 9% 8% 5% 3% 8% 7% 4% 2% Hint Make sune t to nound all intermediate calculations tn at Inast seven (7) decimal nlanes The innut instrnuctions nhrases in nanenthesis after each anewnr hox onlv aoov for ime arsw What is the variance of the government bond investment? »% (Round to six dermal places) What is the standard deviation of the government bond investment? ฏิเ(Rond to two deonnal places ) t the esimates for both the probabilitios of the economy and the refurns ih each state of the economy are oorrect, which investment would you choose, considering both risk and retum? (S O A. The stock investment would be the best choice because it has the highest volabiliny and therefore the best chance of a high return B. The corporate bond would bé the best choice because it has tie highest expected return and the lowest risk Click to select your answer's).

Answer 1

Condition Probability (p) Return (r) p"rr-f r-r 11% 23 2.53 20.89 48.00 Boom 436.392 97.812 122.16 9.89 17.60 Stable growth 18% 20.92 -0.11 0.0120.006 46% 14-3.50-16.11 64.88 25% 259.532 Recession σ2-130.50 Variance of stock investment }ır_ {130.50}1/2-11.42 Standard deviation of stock investment σ=亿p*(r- Condition Probability (p) Return (r) prr f(r-f) p*(r- f) 11% 90.993.52 1.36 12.39 B oom 1.44 1.14 81 2.52 Stable growth 18% 6.35 52.30-0.48 0.11 46% 0.23 6.15 25% 3 0.75 2.48 1.54 Recession 4.15 variance of corporate bond-σ2 4.15

Standard deviation of corporate bond-σ-Zp"(r-r)2}1/2-4.15) 1/2-2.04% Condition Probability (p) Return (r) prr f(r-f)p*(r- f) 11% 80.883.52 1.36 Boom 12.39 1.14 7 1.26 2.52 Stable growth 18% 6.35 41.84 -0.48 0.11 4690 0.23 6.15 25% 2 0.50 2.48 1.54 Recession f- Ipr 4.48 4.15 Variance of government bond-ơ2 4.15 p*(r-thr_ {4.15}1/2-2.04% Standard deviation of government bond-5-{