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Homework answers / question archive / 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
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 |
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 |
