Can you help me to solve this problem step by step please. 20. Given the followi

ID: 2713299 • Letter: C

Question

Can you help me to solve this problem step by step please.

20. Given the following information, what is the standard deviation of the returns on this stock?

State of Economy Probability of State of Economy Rate of Return

Boom .04 .26

Normal .74 .17

Recession .22 -.44

A. 19.90 percent

B. 20.52 percent

C. 22.41 percent

D. 23.79 percent

E. 25.52 percent

Explanation / Answer

Solution :

option 'E' is correct i.e 25.52%

state of economy

Probability (p)

return (r)

P xr (i.e mean)

(c-0.0394)^2

b x e

Boom

0.04

0.26

0.0104

0.04866436

0.001946574

Normal

0.74

0.17

0.1258

0.01705636

0.012621706

recession

0.22

-0.44

-0.0968

0.22982436

0.050561359

0.0394

0.29554508

0.06512964

Mean = 0.0394

25.52%

Variance = p [(r - mean)^2]

Standard deviation = square root of variance