Question
In: Finance
Variance and standard deviation (expected). Hull Consultants, a famous think tank in the Midwest, has provided...
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. The probability of a boom economy is
10 %,
the probability of a stable growth economy is
17%,
the probability of a stagnant economy is
55%,
and the probability of a recession is
18%.
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?
|
Investment |
Forecasted Returns for Each Economy |
||||||||
|
Boom |
Stable Growth |
Stagnant |
Recession |
||||||
|
Stock |
30% |
12% |
3% |
−10% |
|||||
|
Corporate bond |
10% |
7% |
6% |
4% |
|||||
|
Government bond |
9% |
6% |
5% |
3% |
|||||
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.
Solutions
jeff jeffy answered 11 months agoRelated Solutions
Variance and standard deviation Hull Consultants, a famous think tank in the Midwest, has provided probability...
Variance and standard deviation
Hull Consultants, a famous think tank in the Midwest, has
provided probability estimates for the four potential economic
states for the coming year. The probability of a boom economy is
13%, the probability of a stable growth economy is 20%, the
probability of a stagnant economy is 54%, and the probability of a
recession is 13%.
Calculate the variance and the standard deviation of the three
investments: stock, corporate bond, and government bond. If the
estimates...
Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four...
Hull Consultants, a famous think tank in the Midwest, has
provided probability estimates for the four potential economic
states for the coming year. The probability of a boom economy is
12%, the probability of a stable growth economy is 18%, the
probability of a stagnant economy is 45%, and the probability of a
recession is 25%. Calculate the variance and the standard
deviation of the three investments: stock, corporate bond, and
government bond. If the estimates for both the probabilities...
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Probability
Expected Return
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0.15
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activities 0 1 2 3 4 5 6 7
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