Based on on the following information calcuate the expected return and standard deviation for Stock A aand Stock B:

Question

Based on on the following information calcuate the expected return and standard deviation for Stock A aand Stock B: Rate of Return if state Occurs Rate Of return If state Occurs State Of Economy Probability of State of Economy Stock A Stock B Recession .10 .04 -.17 Normal .60 .09 .12 Boom .30 .17 .27 Please show work and formula

Help In Homework · Accepted Answer

Stock A Scenario Probability Return% =rate of return% * probability Actual return -expected return(A)% (A)^2* probability Recession 0.1 4 0.4 -6.9 0.0004761 Normal 0.6 9 5.4 -1.9 0.0002166 Boom 0.3 17 5.1 6.1 0.0011163 Expected return %= sum of weighted return = 10.9 Sum=Variance Stock A= 0.00181 Standard deviation of Stock A% =(Variance)^(1/2) 4.25 Stock B Scenario Probability Return% =rate of return% * probability Actual return -expected return(A)% (B)^2* probability Recession 0.1 -17 -1.7 -30.6 0.0093636 Normal 0.6 12 7.2 -1.6 0.0001536 Boom 0.3 27 8.1 13.4 0.0053868 Expected return %= sum of weighted return = 13.6 Sum=Variance Stock B= 0.0149 Standard deviation of Stock B% =(Variance)^(1/2) 12.21

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Based on on the following information calcuate the expected return and standard deviation for Stock A aand Stock B: Rate of Return if state Occurs Rate Of return If state Occurs State Of Economy Probability of State of Economy Stock A Stock B Recession

Expert Solution

Archived Solution

		Rate of Return if state Occurs	Rate Of return If state Occurs
State Of Economy	Probability of State of Economy	Stock A	Stock B
Recession	.10	.04	-.17
Normal	.60	.09	.12
Boom	.30	.17	.27

Stock A
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(A)^2* probability
Recession	0.1	4	0.4	-6.9	0.0004761
Normal	0.6	9	5.4	-1.9	0.0002166
Boom	0.3	17	5.1	6.1	0.0011163

	Expected return %=	sum of weighted return =	10.9	Sum=Variance Stock A=	0.00181
			Standard deviation of Stock A%	=(Variance)^(1/2)	4.25

Stock B
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(B)^2* probability
Recession	0.1	-17	-1.7	-30.6	0.0093636
Normal	0.6	12	7.2	-1.6	0.0001536
Boom	0.3	27	8.1	13.4	0.0053868

	Expected return %=	sum of weighted return =	13.6	Sum=Variance Stock B=	0.0149
			Standard deviation of Stock B%	=(Variance)^(1/2)	12.21