Question

Calculate the standard deviation of this scenario Outcome 1: Recession. Probability = 40%. Return = 7.38%. Outcome 1: Recovery. Probability = 60%. Return = 17.27%.

Answer 1

4.845%

Step-by-step explanation:

Expected return X = 0.40 * 7.38% + 0.60 * 17.27%

Expected return X = 0.02952 + 0.10362

Expected return X = 0.13314

Expected return X = 13.314%

Particulars Prob. Return(x) (x-Xbar) (x-Xbar)^2 Prob*(x-Xbar)^2

Recession 40% 7.38% -5.9340% 0.3521% 0.1408%

Recovery 60% 17.27% 3.9560% 0.1565% 0.0939%

Sum 0.2347%

Standard deviation =
`√(Sumof Prob*(x-Xbar)^2)`

Standard deviation =
`√(0.002347)`

Standard deviation = 0.0484458461

Standard deviation = 4.845%