Help with both parts Rate of Retumi Ii Slafe Occurs Probability of State of cono

Question

Help with both parts Rate of Retumi Ii Slafe Occurs Probability of State of conom 21 51 28 State o Stock B Economy Recession Normal Boom Stock A 09 .12 17 16 13 .30 Calculate the expected return for each stock. (Do not round intermediate calculations. Enter y answers as a percent rounded to 2 decimal places, e.g, 32.16.) Stock A Stock B Calculate the standard deviation for each stock. (Do not round intermediate calculations. Enter y answers as a percent rounded to 2 decimal places, e.g. 32.16.) Standard deviation Stock A Stock B

Explanation / Answer

Stock A:

Expected Return = 0.21 * 0.09 + 0.51 * 0.12 + 0.28 * 0.17
Expected Return = 0.1277
Expected Return = 12.77%

Variance = 0.21 * (0.09 - 0.1277)^2 + 0.51 * (0.12 - 0.1277)^2 + 0.28 * (0.17 - 0.1277)^2
Variance = 0.000830

Standard Deviation = (0.000830)^(1/2)
Standard Deviation = 0.0288
Standard Deviation = 2.88%

Stock B:

Expected Return = 0.21 * (-0.16) + 0.51 * 0.13 + 0.28 * 0.30
Expected Return = 0.1167
Expected Return = 11.67%

Variance = 0.21 * (-0.16 - 0.1167)^2 + 0.51 * (0.13 - 0.1167)^2 + 0.28 * (0.30 - 0.1167)^2
Variance = 0.025576

Standard Deviation = (0.025576)^(1/2)
Standard Deviation = 0.1599
Standard Deviation = 15.99%

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