Save & Exit s Question 3 (of 9) value: 6.00 points Consider the following inform

Question

Save & Exit s Question 3 (of 9) value: 6.00 points Consider the following information: Rate of Return if State Occurs State of Probability of State Stock A Stock B of Economy Economy 0.20 Recession 0.010 0.25 0.55 0.090 0.15 Normal 0.38 0.25 Boom 0.140 Requirement 1: Calculate the expected return for the two stocks. (Do not include the percent signs Round your answers to 2 decimal places (e.g., 32.16) Expected return E(RA) E(RB) Requirement 2: Calculate the standard deviation for the two stocks. (Do not include the percent signs Round your answers to 2 decimal places (e.g., 32.16) Standard deviation OB

Explanation / Answer

The answer is as follows:

Compute the expected returnof the stock.

Therefore, the expected return of stock A = 0.0865 or 8.65%.

the expected return of stock B = 0.1275 or 12.75%.

Compute the Standard deviation of the stock.

Therefore,

the standard deviation of the stock A = 9.46375.

the standard deviation of the stock B = 223.58.

State of economy Probability(P) rate of return Expected return Stock A(x) Atock B(y) Stock A(P*x) Atock B(P*y) Recession 0.2 0.01 -0.25 0.002 -0.05 Normal 0.55 0.09 0.15 0.0495 0.0825 Boom 0.25 0.14 0.38 0.035 0.095 Expected return of the stock 0.0865 0.1275

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