Consider the following information Rate of Return if State Occurs Probability of

Question

Consider the following information Rate of Return if State Occurs Probability of State of Economy Stock A 020 100 160 Stock B Recession Normal Boom -27 57 21 17 40 a. Calculate the expected return for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) return E(RA) E(RB) b. Calculate the standard deviation for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Expected return of A = 9.50%

Standard dev of A = 4.62%

Expected return of B = 12.15%

Standard dev of B = 22.66%

p(x) return p*x p*(x - mean)^2 0.22 2.00% 0.0044 0.001238 0.57 10.00% 0.057 0.000014 0.21 16.00% 0.0336 0.000887

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