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Homework answers / question archive / what is the standard deviation on this data boom normal bust probability 0
what is the standard deviation on this data
boom normal bust
probability 0.2 0.5 0.3
return 20% 8% -25%
| Computation of Standard Deviation: | |||||||
| State of Economy | Probability | Return | Probability * Return | Return - Expected Return | (Return - Expected Return)^2 | Probability *(Return-Expected return)^2 | |
| Boom | 0.2 | 20% | 4.00% | 19.5000% | 0.038025 | 0.76% | |
| Normal | 0.5 | 8% | 4.00% | 7.5000% | 0.005625 | 0.28% | |
| Bust | 0.3 | -25.00% | -7.50% | -25.5000% | 0.065025 | 1.95% | |
| Expected Return = | 0.50% | Variance = | 2.99% | ||||
| Standard Deviation = | 17.30% | =0.28%^(1/2) | |||||
