Question

Consider the following information:

  

		Rate of Return if State Occurs
State of Economy	Probability of State of Economy	Stock A	Stock B
Recession	0.10	0.05	-0.17
Normal	0.50	0.07	0.11
Boom	0.40	0.14	0.33

  

Required:

(a)	Calculate the expected return for Stock A. (Do not round your intermediate calculations.)
	(Click to select)9.60%8.19%11.33%10.37%8.73%

  

(b)	Calculate the expected return for Stock B. (Do not round your intermediate calculations.)
	(Click to select)17.00%9.00%18.85%16.15%17.68%

  

(c)	Calculate the standard deviation for Stock A. (Do not round your intermediate calculations.)
	(Click to select)3.64%2.57%3.82%3.46%3.78%

  

(d)	Calculate the standard deviation for Stock B. (Do not round your intermediate calculations.)
	(Click to select)15.36%10.86%17.13%14.59%15.98%

Answer 1

a. Calculation of Expected Return for Stock A: = (0.10 x 0.05)+(0.50x0.07)+(0.40 x 0.14) = 0.005 + 0.035 + 0.056 = 9.60% a. Calculation of Expected Return for Stock B: = (0.10 x -0.17)+(0.50x0.11)+(0.40 x 0.33) = (-0.017)+0.055+0.132 = 17.00%