50.1K

Verified Solution

Link Copied!

Investment Stock Corporate bond Government bond Boom 21% 10% 9% Forecasted Returns for Each Economy Stablo Growth Slagnant 15% 2% 7% 5% 6% 4% Recessi 10% 4% 3% Variance and standard deviation (expected) Hull Consultants a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year in the following table The probability of a boom economy is 15%, the probability of a stable growth economy is 19%, the probability of a stagnant economy is 46% and the probability of a recession is 20% Calculate the variance and the standard deviation of the three investments stock, corporate bond, and government bond if the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you choose, considering both risk and return? Hint Make sure to round all intermediate calculations to at least seven (7) decimal places. The input instructions, phrases in parenthesis after each answer box, only apply for the answers you will type. What is the vanance of the stock investment? % (Round to six decimal places) What is the standard deviation of the stock investment? % (Round to two decimal places) What is the vanance of the corporate bond investment? % (Round to six decimal places.) What is the standard deviation of the corporate bond investment? % (Round to two decimal places) What is the variance of the government bond investment? % (Round to six decimal places) What is the standard deviation of the government bond investment? 1% (Round to two decimal places) if the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you choose, considering both risk and return? (Select the best response) A. The stock investment would be the best choice because it has the highest volatility and therefore the best chance of a high return B. The corporate bond would be the best choice because it has the highest expected return and the lowest nisk C. The government bond would be the best choice because it has the lowest risk D. There is not enough information to make this decision

Answer & Explanation Solved by verified expert

See Answer