Calculate the standard deviations for Roll and Ross by filling in the following

Question

               

Calculate the standard deviations for Roll and Ross by filling in the following table (verify your answer using returns expressed in percentages as well as decimals): (Negative amounts should be indicated by a minus sign. Round your Economy and Standard deviation answers to 2 decimal and other answers to 4 decimal places. Omit the "%" sign in your response.)

          

Security Returns If State Occurs   State of Probability of   Economy State of Economy         Roll        Ross   Bust .60 9 % 13 %   Boom .40 20 5

Explanation / Answer

Step 1: Calculate Expected Returns

The expected returns are calculated with the use of following table:

________

Step 2: Calculate Standard Deviations

Table 1:

_______

Table 2:

Roll Ross State of Economy (1) Probability of State of Economy (2) Return if State Occurs (3) Product (2*3) Return if State Occurs (4) Product (2*4) Bust 0.6 9.00% 5.40% 13.00% 7.80% Boom 0.4 20.00% 8.00% 5.00% 2.00% Expected Return 13.40% Expected Return 9.80%

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