What is the variance of stock given this information? State of the economy : boo

Question

What is the variance of stock given this information? State of the economy : boom probability of state of the economy: .15 rate of return: .26 State of the economy : normal probability of state of the economy: .65 rate of return: .13 State of the economy : recession probability of state of the economy: .20 rate of return: -.18 the choices are: a) 0.004638 b) 0.006667 c) 0.012121 d) 0.017406 e) 0.019949 To whoever answers this can you please write down the calculator inputs please? I'd like to be able to do these on my own and giving me the answer alone doesn't help me. Thank you.

Explanation / Answer

Hi, Please find the answer as follows: Return under different conditions Boom = .15*.26 = .039 Normal = .65*.13 = .0845 Recession = .20*.-.18 = -.036 Expected Return = 0.0875 Var(R) = .15*(.26 - .0875)^2 + .65*(.13-.0875)^2 + .20*(-.18-.0875)^2 = 19.949 or 19.95% is the answer. Thanks, Aman

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