Module 3 Excel assignment You are trying to decide on investing between two diff

Question

Module 3 Excel assignment You are trying to decide on investing between two different stocks (Stock A or Stock B) During the next year, an economist estimates 4 different market outcomes. His report gives a 10% chance for a recession, a 40% chance for a stable economy, a 30% chance for moderate growth, and a 20% chance for a boom. The table below gives the different payoffs for stocks A & B based on the different market conditions. Payoffs for Stock A and B Recession Stable economy Moderate growth Boom Stock A 30 70 100 150 Stock B -50 30 250 400 Calculate the expected returns, variance, and standard deviation for both stocks in Based on the results, which stock would you pick and why? Justify your answer using the Excel. calculated statistics. Upload the Excel file and your short answer to the proposed question.

Explanation / Answer

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Based on the results we would pick Stock A, because it is more consistent than Stock B, the varaibility of Stock B is much higher than Stock A

Stock A Stock B 30 -50 70 30 100 250 150 400 Mean 87.5 157.5 Variance 2558.33 42225.00 St. Dev. 50.58

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