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 ___ percent and ______ percent, respectively. The expected return and standard deviation for Stock B are _______ percent and _______ percent, respectively. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))

Based on the following information, the expected return and standard deviation for Stock A are ___ percent and ______ percent, respectively. The expected return and standard deviation for Stock B are _______ percent and _______ percent, respectively. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Expected Return, M = Sum of p(x) x X

For Stock A, M = 0.1 x 0.03 + 0.6 x 0.09 + 0.3 x 0.11 = 9.00%

For Stock B, M = 17.50%

Standard Deviation, STD = Square root of Variance = (Variance)^(1/2)

Variance = Sum of p(x) x (A - M)^2

For Stock A, Variance = 0.1 x (0.03 - 0.09)^2 + 0.6 x (0.09 - 0.09)^2 + 0.3 x (0.11 - 0.09)^2 = 0.05%

=> STD for A = 0.05%^(1/2) = 2.19%

Similarly, for B, STD = 13.54%

p(x) A B p(x)*A p(x)*(A-M)^2 p(x)*B p(x)*(B-M)^2 0.1 0.03 -0.17 0.003 0.0004 -0.017 0.0119 0.6 0.09 0.16 0.054 0.0000 0.096 0.0001 0.3 0.11 0.32 0.033 0.0001 0.096 0.0063 M 9.00% 0.05% 17.50% 1.83% STD 2.19% 13.54%

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