Question

Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) State of Economy Probability of State of Economy 0.45 0.40 0.15 Security Return if State Occurs -5.00% 12.00 16.00 Recession Normal Boom Standard deviation

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

- B Probability Security return -5% State Recession Normal Boom Expected Return Standard deviation 45% 40% 15% 12% 16% 4.95% 9.10%

Cell reference -

А B State Recession Normal Boom Expected Return Standard deviation Probability 0.45 0.4 0.15 Security return -0.05 0.12 0.16 =SUMPRODUCT($C$4:$C$6,04:06) =SQRT(SUMPRODUCT((D7-D4:06)^2,$C$4:$C$6)) 11

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.