Question

1. Calculate the expected rate of return for Stock J. Round your answer to two decimal places.
     %
   
2. Calculate the standard deviation for the market. Round your answer to two decimal places.
     %
   
   Calculate the standard deviation for Stock J. Round your answer to two decimal places.
     %

Probability	rM	rJ
0.3	16%	22%
0.4	10	3
0.3	17	13

Probability	rM	rJ
0.3	16%	22%
0.4	10	3
0.3	17	13

Answer 1

Expected Return:

It is simple arithmatical average of returns generated over period of time.
Avg Ret = Sum [ Prob * ret ]

Scenario	Prob	Ret	Prob * Ret
1	0.3000	0.2200	0.0660
2	0.4000	0.0300	0.0120
3	0.3000	0.1300	0.0390
Expected Ret			0.1170

SD:
Standard deviation is a measure of amount of variation or dispersion of set of values. It spcifies the risk of set of values.

SD = SQRT [ SUm [ Prob * (X-AVgX)^2 ] ]

SD of Market:

State	Prob	Ret (X)	(X-AvgX)	(X-AvgX)^2	Prob * (X-Avg X)^2
1	0.3000	0.1600	0.0210	0.000441	0.00013
2	0.4000	0.1000	(0.0390)	0.001521	0.00061
3	0.3000	0.1700	0.0310	0.000961	0.00029
Sum[ Prob * ( X-AvgX)^2 ) ]					0.00103
SD = SQRT [ [ Sum[ Prob * ( X-AvgX)^2 ) ] ] ]					0.03208

SD of Market is 3.21%

SD of STock J:

State	Prob	Ret (X)	(X-AvgX)	(X-AvgX)^2	Prob * (X-Avg X)^2
1	0.3000	0.2200	0.1030	0.010609	0.00318
2	0.4000	0.0300	(0.0870)	0.007569	0.00303
3	0.3000	0.1300	0.0130	0.000169	0.00005
Sum[ Prob * ( X-AvgX)^2 ) ]					0.00626
SD = SQRT [ [ Sum[ Prob * ( X-AvgX)^2 ) ] ] ]					0.07913

SD of STock J is 7.91%