Compute the standard deviation given these four economic states, their likelihoods, and the potential returns: Economic...

Compute the standard deviation given these four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.35 40% Slow Growth 0.45 10% Recession 0.10 -10% Depression 0.10 -100% 39.48 percent 12.65 percent 113.69 percent 7.5 percent

Solutions

Expert Solution

The correct answer is 39.48 percent

Note:

State of Economy	Probability	Expected Stock Return on Stock	Expected Return ( Probability * Expected Stock Return)
Fast Growth	0.35	0.40	0.1400
Slow Growth	0.45	0.10	0.0450
Recession	0.10	-0.10	-0.0100
Depression	0.10	-1	-0.1000



	Expected Return		0.0750
	Expected Return %		7.50

State of Economy	Probability	Probable Return	Deviation ( Probable Return- Expected Return)	Deviation Squared	Product ( Deviation Squared* Probability)
Fast Growth	0.35	40.00	32.50000	1056.250	369.68750
Slow Growth	0.45	10.00	2.50000	6.250	2.81250
Recession	0.10	-10.00	-17.50000	306.250	30.62500
Depression	0.10	-100.00	-107.50000	11556.250	1155.62500


			Variance ( Sum of Product)		1,558.75
			Standard Deviation (Square root of Variance)		39.48

jeff jeffy answered 11 months ago

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