Video Excel Online Structured Activity: Expected Returns: Discrete Distribution

Question

Video Excel Online Structured Activity: Expected Returns: Discrete Distribution The market and Stock J have the following probability distributions: Probability 0.3 0.4 0.3 14.00 % 21.00 % 9.00 5.00 17.00 10.00 The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. Calculate the expected rate of return for the market. Do not round intermediate calculations. Round your answer to two decimal places. Calculate the expected rate of return for Stock J. Do not round intermediate calculations. Round your answer to two decimal places. b. Calculate the standard deviation for the market. Do not round intermediate calculations. Round your answer to two decimal places Calculate the standard deviation for Stock J. Do not round intermediate calculations. Round your answer to two decimal places. Check My Work Reset Problem

Explanation / Answer

Market:

Expected Return = 0.30 * 14.00% + 0.40 * 9.00% + 0.30 * 17.00%
Expected Return = 12.90%

Variance = 0.30 * (0.14 - 0.129)^2 + 0.40 * (0.09 - 0.129)^2 + 0.30 * (0.17 - 0.129)^2
Variance = 0.001149

Standard Deviation = (0.001149)^(1/2)
Standard Deviation = 0.0339 or 3.39%

Stock J:

Expected Return = 0.30 * 21.00% + 0.40 * 5.00% + 0.30 * 10.00%
Expected Return = 11.30%

Variance = 0.30 * (0.21 - 0.113)^2 + 0.40 * (0.05 - 0.113)^2 + 0.30 * (0.10 - 0.113)^2
Variance = 0.004461

Standard Deviation = (0.004461)^(1/2)
Standard Deviation = 0.0668 or 6.68%

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