Question

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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 Security Return If State Occurs Recession Normal Boom 0.5 0.2 -14% 15 24

Answer 1

Given, different states Pohabikines of Recenson Normal 0.2 noom 0.3 (Balance Total Rehms at different State: -14-1: 24.1. Rz expected yetum 8 when probabilities are given, Pirit P2 RTP, R3 0.5x(-14) + 0-2X(15) + 0-3(24) 2 -7+3+ 7.2

Calculation standard devanon, loker are given Rohabiche le probability (R-R) (R_R) 2 R R -17.2 295.84 139.29 -14 3.2. 3.2 15 432.64 3.2 24 20.8 0.5x295.84 +0:2x139.24 +0-3x432-64 147.92 + 27.848 + 129.792 1305.6. 17.48.4

2) given. Epcotea Assame, A } Door inc Down col expected rehm (RA) expected rehm (R2) = stendard deviation (6A) = 441 Stemdard devianca (B) = Corelation r(A,B)= 0.2 expected rehm of minimum vanance. Parthote 314 69² 2. GARN (AIB) 6 2 68² - 24 Gr (A,B) = (0-3077-6. & -0.44 x 0.31 x 0.2 (044) 7 0.2172-270-44 60:31X0 2 20.0961 0.02728 0.1936 to 0961 -0.05456 0:0 6882 0.23514 9 0.2926 20-26

10A 2. - о. 1926 3. Тоа expected rehm 44 t дев 2 o 246x 3 + 0.4 X lo 1. gD& t 1.org 10. 2 10. е..