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Homework answers / question archive / You are a portfolio manager
You are a portfolio manager. John Smith, one of your clients, by providing you the following formation requested you to calculate standard deviation of Shah Corporation stock and High Fly Corporation.
Shah Corporation Stock
State of Economy Probability of State of Economy Rate of Returns if State Occurs
Boom 5% 13%
Good 25% 8%
poor 50% 2%
Bust 20% -6%
High Fly Corporation Stock
State of Economy Probability of State of Economy Rate of Returns if State Occurs
Boom 5% 40%
Good 25% 25%
poor 50% -5%
Bust 20% -28%
Based on the given information, what is the standard deviation of the returns on i) Shah Corporation and ii) High Fly Corporation? Which stock has higher standard deviation? Why? Please provide your reasoning. Please show all the calculations by which you came up with the final answer.
Standard deviation of returns ;
i) Shah Corporation = 5.26%
ii) High Fly Corporation = 20.14%
High Fly stock has higher standard deviation because it has more dispersion of returns around the expected returns.
