Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. consider the following information:   

Consider the following information:    Rate of Return if State Occurs   State of Economy Probability of State of Economy Stock...

Free

60.1K

Verified Solution

Question

Finance

Consider the following information:

  

Rate of Return if State Occurs
  State of EconomyProbability of State of EconomyStock AStock B
  Recession.10.03–.20
  Normal.70.08.14
  Boom.20.13.32

Calculate the standard deviation for stock a and b.

Answer & Explanation Solved by verified expert
4.5 Ratings (757 Votes)

Stock A Stock B
Standard deviation 2.69% 13.43%
Working:
# 1 Calculation of expected return of both stock:
Stock A Stock B
State of Economy Probability of State of Economy Rate of return Rate of return
a b c=a*b d e=a*d
Recession           0.10 0.03       0.0030 -0.2     -0.0200
Normal           0.70 0.08       0.0560 0.14      0.0980
Boom           0.20 0.13       0.0260 0.32      0.0640
Expected return       0.0850      0.1420
# 2 Calculation of variance of both stock:
Stock A Stock B
State of Economy Probability of State of Economy Rate of return Expected return Rate of return Expected return
a b c d=((b-c)^2)*a e f g=((e-f)^2)*a
Recession           0.10 0.03       0.0850 0.000303 -0.2      0.1420 0.011696
Normal           0.70 0.08       0.0850 0.000017 0.14      0.1420 0.000003
Boom           0.20 0.13       0.0850 0.000405 0.32      0.1420 0.006337
Variance 0.000725 0.018036
# 3 Calculation of stnadard deviation :
Standard deviation = Variance ^ (1/2)
So, Standard deviation of:
Stock A = 0.000725 ^ (1/2) = 0.026926
Stock B = 0.018036 ^ (1/2) = 0.134298

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Consider the following information:  Rate of Return if State Occurs  State of EconomyProbability of State of EconomyStock AStock B  Recession.10.03–.20  Normal.70.08.14  Boom.20.13.32Calculate the standard deviation for stock a and b.

Other questions asked by students

Q

1. A mass weighing 10 lbs. is attached to a spring suspended from the ceiling. The...

Physics
Q

home / study / science / physics / physics questions and answers / this is my...

Physics
Q

A highway department executive claims that the number of fatal accidents which occur in her state...

Basic Math
Q

Chiplist is a? fast-growing manufacturer of computer chips. Direct materials are added at the start of...

Accounting
Q

x+y=kx-y=kThe solution to the system shown is(2, 2)(k, 0)(0. k)

Basic Math
Q

Erica is 33 years old She has 580 in a checking account 3400 in a...

Algebra
Q

A company is contemplating investing in a new piece of manufacturing machinery. The amount to...

Accounting
Q

Clark Companys master budget includes $360,000 for equipment depreciation. The master budget was prepared for...

Accounting
Q

The following information pertains to the next two questions. On April 1, 2019, Green Corporation...

Accounting
Q

Part 3: Questions 25-37 Tony and Suzie graduate from college in May 2024...

Accounting
Q

A building is acquired on January on at a cost of 860000 with a Estimated...

Accounting
Q

Chapter 19 [The following information applies to the questions displayed below. Winfrey Co's March 31...

Accounting