Suppose your expectations regarding the stock market are as follows: State of the Economy Probability HPR...
Suppose your expectations regarding the stock market are as follows:
| State of the Economy | Probability | HPR |
| Boom | 0.3 | 42% |
| Normal growth | 0.4 | 15 |
| Recession | 0.3 | -18 |
What is the mean?
What is the Standard Deviation?
Homework Answers
Mean=Respective HPR*Respective probability
=(0.3*42)+(0.4*15)+(0.3*-18)=13.2%
| probability | HPR | probability*(HPR-Mean)^2 |
| 0.3 | 42 | 0.3*(42-13.2)^2=248.832 |
| 0.4 | 15 | 0.4*(15-13.2)^2=1.296 |
| 0.3 | -18 | 0.3*(-18-13.2)^2=292.032 |
| Total=542.16% |
Standard deviation=[Total probability*(HPR-Mean)^2/Total probability]^(1/2)
=[542.16]^(1/2)
=23.28%(Approx).
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