Based on the following information, calculate the standard deviation: State of Probability Economy Probability of state of economy Rate of return if state occurs Depression 0

Finance Dec 21, 2020

Based on the following information, calculate the standard deviation:

State of Probability Economy	Probability of state of economy	Rate of return if state occurs
Depression	0.15	-0.105
recession	0.30	0.059
Normal	0.45	0.130
Boom	0.10	0.211

Expert Solution

Ans 9.00%

State of Economy	Probability (P)	RETURN (Y)	(P * Y )	P * (Y -Average Return of Y)^2
Depression	15%	-10.50	-1.58	52.20
Recession	30%	5.90	1.77	1.53
Normal	45%	13.00	5.85	10.56
Boom	10%	21.10	2.11	16.76
		TOTAL	8.16	81.05


Expected Return =		(P * Y)
		8.16%

VARIANCE =		P * (Y -Average Return of Y)^2
		81.0475


Standard Deviation =		Square root of (P * (Y -Average Return of Y)^2)
		Square root of 81.05
		9.00

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