Suppose your expectations regarding the stock market are asfollows:State of the EconomyProbabilityHPR...
Suppose your expectations regarding the stock market are as follows:
| State of the Economy | Probability | HPR | |
| Boom | 0.4 | 41% | |
| Normal growth | 0.4 | 15 | |
| Recession | 0.2 | -19 | |
Use above equations to compute the mean and standard deviation of
the HPR on stocks. (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
| Mean | % |
| Standard deviation | % |
Homework Answers
1)
Mean = 0.4*0.41 + 0.4*0.15 + 0.2*(-0.19)
Mean = 0 164 + 0.06 - 0.038
Mean = 0.186 or 18.60%
2)
Standard deviation = [0.4(0.41 - 0.186)2 + 0.4(0.15 - 0.186)2 + 0.2(-0.19 - 0.186)2]1/2
Standard deviation = [0.02007 + 0.000518 + 0.028275]1/2
Standard deviation = 0.2211 or 22.11
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