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 .30 -16 % 20 %   Boom .70 27 7

Explanation / Answer

Expected return of Roll=0.3*(-16%)+0.7*27%=14.1%

Expected return of Ross=0.3*(20%)+0.7*7%=10.9%

State of Economy     Probability of State of Economy     Return Deviation from Expected Return     Squared Return Deviation      Product   Roll     Bust 0.3 -29.1 846.81 254.043     Boom 0.7 12.9 166.41 116.487     2 = 370.53       Ross     Bust 0.3 9.1 82.81 24.843     Boom 0.7 -3.9 15.21 10.647     2 = 35.49     Standard deviations Roll 19.25% Ross 5.96%

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