Consider the following information: Calculate the expected return for Stock A. (

Question

Consider the following information:

  

  

Calculate the expected return for Stock A. (Do not round your intermediate calculations.)

  

Calculate the expected return for Stock B. (Do not round your intermediate calculations.)

  

Calculate the standard deviation for Stock A. (Do not round your intermediate calculations.)

  

Calculate the standard deviation for Stock B. (Do not round your intermediate calculations.)

Rate of Return if State Occurs   State of Economy Probability of State of Economy Stock A Stock B   Recession 0.20 0.05 -0.22   Normal 0.60 0.08 0.13   Boom 0.20 0.13 0.31

Explanation / Answer

a)

The correct answer is 8.40%

b) The correct answer is 9.60%

c)

The correct answer is 2.58

Note :

Standard Deviation = Square Root of Variance

d)

The correct answer is 17.27

State of Economy Probability Stock A Expected Return A ( Probability * Expected Return) Recession 0.20 0.05 0.0100 Normal 0.60 0.08 0.0480 Boom 0.20 0.13 0.0260 Expected Return  A 0.0840 Expected Return  A % 8.40

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