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 on market = 0.3*14%+0.4*10%+0.3*20% = 14.2%

Expected return on stock J = 0.3*21%+0.4*3%+0.3*12% = 11.1%

Standard deviation for market return = [0.3*(0.142-0.14)^2+0.4*(0.142-0.10)^2+0.3*(0.142-0.20)^2]^(1÷2) = 4.14%

Standard deviation for Stock J return = [0.3*(0.111-0.21)^2+0.4*(0.111-0.03)^2+0.3*(0.111-0.12)^2]^(1÷2) = 7.48%

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