Expected Return: Discrete Distribution The market and Stock J have the following

Question

Expected Return: Discrete Distribution

The market and Stock J have the following probability distributions:

Calculate the expected rate of return for the market. Round your answer to two decimal places.
  %

Calculate the expected rate of return for Stock J. Round your answer to two decimal places.
  %

Calculate the standard deviation for the market. Round your answer to two decimal places.
  %

Calculate the standard deviation for Stock J. Round your answer to two decimal places.
  %

Explanation / Answer

Expected Return of Market = 0.3 * 14% + 0.4*8% + 0.3* 17% = 12.50%
Expected Return of Stock J = 0.3 * 21% + 0.4*7% + 0.3* 11% = 12.40%

Standard Deviation = (0.3*(14%-12.5%)2 + 0.4 *(8%-12.5%)2 +0.3 * (17%-12.50%)2)0.5 = 3.85%
Standard Deviation = (0.3*(21%-12.4%)2 + 0.4 *(7%-12.4%)2 +0.3 * (11%-12.4%)2)0.5 =5.87%%

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