Question

Consider the following information:

  

		Rate of Return if State Occurs
State of Economy	Probability of State of Economy	Stock A	Stock B
Recession	0.20	0.05	-0.22
Normal	0.70	0.08	0.13
Boom	0.10	0.12	0.33

  

Required:

(a)	Calculate the expected return for Stock A. (Do not round your intermediate calculations.)
	(Click to select)7.80%

  

(b)	Calculate the expected return for Stock B. (Do not round your intermediate calculations.)
	(Click to select)8.00%

  

(c)	Calculate the standard deviation for Stock A. (Do not round your intermediate calculations.)

  

(d)	Calculate the standard deviation for Stock B. (Do not round your intermediate calculations.)

Need the answers to C and D

Answer 1

Stock A
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(A)^2* probability
Recession	0.2	5	1	-2.8	0.0001568
Normal	0.7	8	5.6	0.2	0.0000028
Boom	0.1	12	1.2	4.2	0.0001764
	Expected return %=	sum of weighted return =	7.8	Sum=Variance Stock A=	0.00034
			C. Standard deviation of Stock A%	=(Variance)^(1/2)	1.83
Stock B
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(B)^2* probability
Recession	0.2	-22	-4.4	-30	0.018
Normal	0.7	13	9.1	5	0.00175
Boom	0.1	33	3.3	25	0.00625
	Expected return %=	sum of weighted return =	8	Sum=Variance Stock B=	0.026
			D. Standard deviation of Stock B%	=(Variance)^(1/2)	16.12