We know the following expected returns for stocks A and B, given different states of the...

We know the following expected returns for stocks A and B, given different states of the economy:

State (s)	Probability	E(r_A,s)	E(r_B,s)
Recession	0.3	-0.01	0.04
Normal	0.5	0.14	0.07
Expansion	0.2	0.22	0.11

Note: If you can, it is much faster to solve these problems in a spreadsheet. However, the answer cannot be had simply by using the built-in AVERAGE() or STDEV() functions. If you are somewhat familiar with Excel, you might look into the SUMPRODUCT() function which is widely used to calculate weighted sums.

A: What is the expected return for stock A? 3+ Decimals

B: What is the expected return for stock B? 3+ Decimals

C:What is the standard deviation of returns for stock A? 3+ Decimals

D: What is the standard deviation of returns for stock B? 4+3+ Decimals

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Expert Solution

jeff jeffy answered 1 year ago

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