Question

Use the following information to answer the question: Stock’s Expected State of Probability of Return if this the Economy State Occurring State Occurs Boom 0.25 25% Normal 0.50 15 Recession 0.25 5 The expected return is 15%. What is the standard deviation?

Answer 1

0.0707

Step-by-step explanation:

Hope this helps

Answer 2

The answer is 0.0707

Step-by-step explanation:

Solution

Given that:

Probability Return Probability(return-expected return)^2

0.25 25 0.25(25-15)^2=25

0.5 15 0.5(15-15)^2=0

0.25 5 0.25(5-15)^2=25

Total = 25 +0 + 25

= 50

Thus

The next step is to find the standard deviation which is given below:

Standard deviation=[total probability (return-expected return)^2/total probability]^(1/2)

=(50)^(1/2)

=0.0707

Hence the standard deviation is 0.0707.

Note: The expected return is =15%