Suppose that you have invested a large sum of Investopedia $ into natural gas, which is used by a large percentage of homes for heating.
The returns on your position will depend upon the weather as given in the following table:
a.What is the expected return on your natural gas position?
b.What is the volatility of the natural gas returns?
Scenario | Probability | Retrun | Retrun* Probability | Deviation=Return-Expected return | Deviation^2 | Probability*Deviation^2 |
Severe Cold | 7.50% | 0.90 | 6.750% | 69.000% | 47.610% | 3.57075% |
Normal | 70.00% | 0.30 | 21.000% | 9.000% | 0.810% | 0.56700% |
Severe Hot | 22.50% | (0.30) | -6.750% | -51.000% | 26.010% | 5.85225% |
Total | 21.000% | Total | 9.99000% | |||
So expected return is 21% | ||||||
Stock variance | 9.9900% | |||||
Stock Standard deviation | '9.99%^(0.5) | |||||
Stock Standard deviation | 31.61% | |||||
Suppose that you have invested a large sum of Investopedia $ into natural gas, which is...
Suppose that you have invested a large sum of Investopedia $ into natural gas, which is used by a large percentage of homes for heating. The returns on your position will depend upon the weather as given in the following table: State Probability Return Severe cold 0.175 0.4 Normal weather 0.7 0 Severe heat 0.125 -0.4 What is the expected return on your natural gas position? What is the volatility of the natural gas returns? 4. Suppose that you have...