Expected Return = 0.3*25% + 0.5*15% + 0.2*-5%
= 14%
Calculation of Standard Deviation:
State |
Prob. |
Expected Return (X) |
Mean |
X-Mean |
(x-Mean)2*Prob. |
Boom |
0.3 |
25% |
14% |
11% |
36.3 |
Normal |
0.5 |
15% |
14% |
1% |
0.5 |
Recession |
0.2 |
-5% |
14% |
-19% |
72.2 |
109 |
Standard Deviation = (109)1/2
=10.44%
Problem 1 FIN300 Corp. believes the following probability distribution exists for its stock. What is the...
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