Based on the following information: Rate of Return if State Occurs State of Prob

Question

Based on the following information: Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Recession .20 .06 .20 Normal .55 .07 .13 Boom .25 .11 .33 Calculate the expected return for the two stocks. (Round your answers to 2 decimal places. (e.g., 32.16)) Expected return Stock A % Stock B % Calculate the standard deviation for the two stocks. (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16)) Standard deviation Stock A % Stock B %

Explanation / Answer

Stock Rate State Probability Weighted of Return of Rate of Economy Return A 6% Recession 20% 1.200% 7% Normal 55% 3.850% 11% Boom 25% 2.750% 7.800% Expected Return B 20% Recession 20% 4.000% 13% Normal 55% 7.150% 33% Boom 25% 8.250% 19.400% Expected Return Standard Deviation Calculation Stock A 27.93% Stock B 44.05%

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