# Calculate the standard deviation for the two stocks

 Consider the following information:

 Probability of State Rate of Return if State Occurs Economy of Economy Stock A Stock B Recession .24 .055 –.34 Normal .64 .135 .24 Boom .12 .230 .47

 a. Calculate the expected return for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Consider the following information:

 Rate of Return if State Occurs State of Probability of State Economy of Economy Stock A Stock B Recession .24 .055 –.34 Normal .64 .135 .24 Boom .12 .230 .47

Requirement 1= Expected Return of=

Stock A= (0.24*0.055) + (0.64*0.135) + (0.12*0.230) = 12.72%

Stock B=(0.24*-0.34) + (0.64*0.24) + (0.12*0.47) = 12.84%

Requirement 2=The Standard Deviation for the two Stocks:

Stock A=

 Probability Rate of Return XP X2P P X 0.24 0.055 0.0132 0.000726 0.64 0.135 0.0864 0.011664 0.12 0.230 0.0276 0.006348 0.1272 0.018738

Standard Deviation = Square Root (0.018738- (0.1272)2 )

= Square Root (0.018738-0.01617984) = Square Root (0.00255816)

= 0.0505 = 5.05 %

Stock B=

 Probability Rate of Return XP X2P P X 0.24 -0.34 -0.0816 0.027744 0.64 0.24 0.1536 0.036864 0.12 0.47 0.0564 0.026508 0.1284 0.091116

Standard Deviation = Square Root (0.091116- (0.1284)2 )

= Square Root (0.091116-0.01648656) = Square Root (0.07462944)

= 0.27318 = 27.32 %

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