Based on the following information, the expected return and standard deviation f

Question

Based on the following information, the expected return and standard deviation for Stock A are ..?? correct percent and ...? incorrect percent, respectively. The expected return and standard deviation for Stock B are...? incorrect percent and ...? correct percent, respectively. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16)) Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession .15 .05 –.17 Normal .65 .08 .12 Boom .20 .13 .29

Explanation / Answer

The expected return is distribution mean.
Probability each event the value For instance:
.15 * .05 + .65 * .08 + .20 * .13

It's a standard formula.

s.d. is the sum of squares of difference from mean. call the expected value stock A "aa". covariance,

then

= .15 (.05 - aa)^2 + .65 (.08 - aa)^2 + .20 (.13 - aa)^2

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