What is the expected standard deviation of stock A’s returns based on the information presented in...

What is the expected standard deviation of stock A’s returns based on the information presented in the table? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098. Note that figures in the table are presented in decimal format, not as percentages. Outcome Probability of outcome Stock A return in outcome Good 0.2 0.8 Medium 0.5 0.1 Bad ? -0.5

Expert Solution

Ans:- Probability of outcome in bad will be 1 - 0.20 - 0.50 = 0.30

Return of Stock A is 0.80 i.e 80%, 0.10 i.e 10% and -0.50 i.e 50% ( Returns are given in decimal format not as percentage)

Note:- Expected Standard deviation (SD) is calculated by taking the square root of the variance

The expected Standard deviation is 45.21% that means 0.4521 is the SD of Stocks A return.

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jeff jeffy answered 1 year ago

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