Given the following information, what is the variance of the returns on this sto

Question

Given the following information, what is the variance of the returns on this stock?

State of Economy                        Probability of State of Economy     Rate of Return

      Boom                                                            .18                                                     .29

     Normal                                                            .77                                                    .14

    Recession                                                       .05                                                    -.45

Select one:

a. 0.021387

b. 0.021449

d. 0.021538

e. 0.0215641

Explanation / Answer

Ans: Calculation of variance: Economy Given ret Prob Expected ret given ret- exp ret(d) d^2 Prob D^2* prob Boom 0.29 0.18 0.0522 0.1525 0.0233 0.18 0.004186 Normal 0.14 0.77 0.1078 0.0025 6E-06 0.77 4.81E-06 Recession -0.45 0.05 -0.0225 -0.5875 0.3452 0.05 0.017258 Total 0.1375 Total 0.021449 Std deviation= underroot of .021449 0.1464 Variance= square of .1464=.021449 ans B is correct

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.