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The probability distributions of possible returns for Stocks X and Y are as follows: Economic State               ...

The probability distributions of possible returns for Stocks X and Y are as follows:

Economic State                Probability                  X                     Y

Recession                              0.2                           -15%               -5%

Normal                                  0.6                           20%                 15%

Boom                                    0.2                           30%                 25%

  1. Calculate the expected return on each stock. Show your calculations. (8 points)
  2. Calculate the standard deviation for each stock. Show your calculations. (10Points)
  3. Which stock do you consider riskier? Explain. (2 Points)
  4. In which stock would you prefer to invest? Explain. (2 Points)

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jeff jeffy answered 1 year ago
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