Question

An investor is considering the purchase of Gryphon stock, which has returns given in the table below.

Scenario	Probability	Rate of Return
Recession	0.2	-2%
Normal Economy	0.54	5%
Boom	0.26	13%

Calculate the expected return and standard deviation of Gryphon. Round your answers to 2 decimal places.

Enter your answers below.

E(r) =     %

Std. Dev. =   %

Answer 1

Expected return=Respective return*Respective probability

=(0.2*-2)+(0.54*5)+(0.26*13)=5.68%

probability	Return	probability*(Return-Expected return)^2
0.2	-2	0.2*(-2-5.68)^2=11.79648
0.54	5	0.54*(5-5.68)^2=0.249696
0.26	13	0.26*(13-5.68)^2=13.931424
		Total=25.9776%

Standard deviation=[Total probability*(Return-Expected return)^2/Total probability]^(1/2)

=(25.9776)^(1/2)

=5.1%(Approx).