Question

Calculate the standard deviation for Stock C. (Enter percentages as decimals and round to 4 decimals)

State	Prob(State)	Stock A	Stock B	Stock C
Boom	30%	-12%	16%	-3%
Modest Growth	50%	30%	5%	-1%
Recession	20%	-12%	-1%	25%

Answer 1

Average Return=Respective Return*Respective probability

=(0.3*-3)+(0.5*-1)+(0.2*25)=3.6%

probability	Return	probability*(Return-Expected Return)^2
0.3	-3	0.3*(-3-3.6)^2=13.068
0.5	-1	0.5*(-1-3.6)^2=10.58
0.2	25	0.2*(25-3.6)^2=91.592
		Total=115.24%

Standard deviation=[Total probability*(Return-Expected Return)^2/Total probability]^(1/2)
=0.1073(Approx).