Compute the expected return given these three economic states, their likelihoods

Question

Compute the expected return given these three economic states, their likelihoods, and the potential returns: (Round your answer to 2 decimal places.)

Compute the expected return given these three economic states, their likelihoods, and the potential returns: (Round your answer to 2 decimal places.)

Following are three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast growth 0.32 42 % Slow growth 0.34 19 Recession 0.34 –45 Determine the standard deviation of the expected return. (Do not round intermediate calculations and round your answer to 2 decimal places.)

Following are four economic states, their likelihoods, and the potential returns:    Economic State Probability Return Fast growth 0.42 61 % Slow growth 0.26 11 Recession 0.25 –23 Depression 0.07 –57    Compute the expected return and standard deviation. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Explanation / Answer

1.

Expected return=(Respective returns*Respective probabilities)

=(0.32*42)+(0.34*19)+(0.34*-45)=4.6%

SD=[Total of Probability*(return-mean)^2/Total probability]^(1/2)

=36.80%(Approx).

2.

Expected return=(0.42*61)+(0.26*11)+(0.25*-23)+(0.07*-57)=18.74%

Hence SD=40.03%(approx).

Probability Return Probability*(Return-mean)^2 0.32 42 0.32*(42-4.6)^2=447.6032 0.34 19 0.34*(19-4.6)^2=70.5024 0.34 -45 0.34(-45-4.6)^2=836.4544 Total=1354.56%

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.