Rate of Return if State Occurs State of Economy Recession Norma1 Boom Probabilit
ID: 2807426 • Letter: R
Question
Rate of Return if State Occurs State of Economy Recession Norma1 Boom Probability of State of Economy 0.20 0.55 0.25 Stock A Stock B 0.06 0.13 0.18 0.17 0.37 a. Calculate the expected return for the two stocks. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct Expected return for A Expected return for B 24.00 X % 16.40 |% b. Calculate the standard deviation for the two stocks. (Do not round your intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct Standard deviatio 16.39 X% for A Standard deviation for B 10.46X %Explanation / Answer
a. Expected return of A = 0.2* 0.06 + 0.55* 0.13 + 0.25 * 0.18 = 0.012 + 0.0715 + 0.045 = 0.1285 = 12.85%
B.
SD A= 4%
SD B = 16.01%
C.
Calculation of return All are in % Probability(P) A P*A A-Return® (A-R)^2( SQUARE)*P Probability(P) B P*B B-Return® (B-R)^2( SQUARE)*P 0.20 6.00 1.20 -6.9 9.3845 0.20 -11.00 -2.20 -27.4 150.1520 0.55 13.00 7.15 0.1 0.0124 0.55 17.00 9.35 0.6 0.1980 0.25 18.00 4.50 5.2 6.6306 0.25 37.00 9.25 20.6 106.0900 1.00 12.85 16.0275 1.00 16.40 256.4400 Returnn-X 12.85 Reurn-Y 16.40 Standard deviation-A, root of 16.0275 4.00 Standard deviation -B, root of 256.44 16.01Related Questions
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