Consider the following information: Rate of Return If State Occurs State of Prob

Question

Consider the following information: Rate of Return If State Occurs State of Probability of State of Economy Recession Normal Boom Stock A Stock B Economy .21 58 21 06 09 14 08 .25 Calculate the expected return for each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return Stock A Stock B Calculate the standard deviation for each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Standard deviation 2.64 % 15.2 % Stock A Stock B

Explanation / Answer

Stock A

Expected return = 9.42%

Standard dev = 2.64%

Stock B:

Expected return = 5.48%

Standard dev = 15.20%

p(x) return p*x p*(x - mean)^2 0.21 6.00% 0.0126 0.000246 0.58 9.00% 0.0522 0.000010 0.21 14.00% 0.0294 0.000441

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