Question

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What is the expected standard deviation of stock A's returns based on the information presented in the table? Answer as a rate in decimal format so that 12.34% would be entered as 1234 and 0.98% would be entered as .0098. Note that figures in the table are presented in decimal format, not as percentages. Outcome Probability of outcome Stock A return in outcome Good 0.3 0.6 Medium 0.5 0.1 Bad -0.1 ? Number

Answer 1

Rate of return probability Expected return (Return x probability) deviation^2 deviation A 2x probability state deviation Return (-) 21% 39.000% Good 30% 18.000% 15.21% 0.6 0.04563 5.000% Medium 50% -11.000% 1.21% 0.00605 0.1 9.61% Bad 20% -2.000% -0.1 -31.000% 0.01922 21.00% Expected return 0.070900 Variance 0.2663 Standard deviation variance^0.5 [0.0709 0.5]