Question

Module Three Homework Template - Excel Data Review View Tell me what you want to do = = Wap Test General . D XI Copy Merge & Center. $ . % , 99 Home Insert Page Layout Formulas A cut 10 A Format Painter BIU.. . Clipboard Font - x x P7-5 A B C D E 7- 5 9 points Conditional Format as Formatting Table Styles Cell Styles Insert Delete for - Alignment Number H I J K L M N No credit will be given if work is not shown. Highlight or bold your answers. O P alculate the expected return, variance, and standard deviation for each stock listed below. (Show your work. Label %. Two decimal places equired.) State of the Economy Probability Stock A Stock B Stock C Recession 15% -20% -10% -5% Normal growth 65% 18% 13% 10% Boom 20% 40% 28% 20%

Answer 1

Expected Return of Stock A =15%*-20%+65%*18%+20%*40% =16.70%
Expected Return of Stock B =15%*-10%+65%*13%+20%*28% =12.55%
Expected Return of Stock A =15%*-5%+65%*10%+20%*20% =9.75%

Variance of Stock A =15%*(-20%-16.70%)^2+65%*(18%-16.70%)^2+20%*(40%-16.70%)^2 =3.1771% or 3.18%
Variance of Stock B =15%*(-10%-12.55%)^2+65%*(13%-12.55%)^2+20%*(28%-12.55%)^2 =1.2415% or 1.2415%
Variance of Stock C =15%*(-5%-9.75%)^2+65%*(10%-9.75%)^2+20%*(20%-9.75%)^2 =0.5369% or 0.54%

Standard Deviation of A =3.1771%^0.5=17.82%
Standard Deviation of B =1.2415%^0.5 =11.14%
Standard Deviation of C =0.5369%^0.5 =7.33%

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