# Expected return and standard deviation of stocks

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Based on the attached information, calculate the expected return and standard deviation for the two stocks.

Probability of State of Economy Stock P Rate of Return Stock Q Rate of Return

State of Economy

Recession 0.15 0.04 -0.2

Normal 0.75 0.08 0.2

Boom 0.1 0.16 0.6

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##### Solution Summary

The solution shows steps to calculate the expected return and standard deviation of two stocks that have different returns in different states of nature- recession, normal, boom. The probabilities of the states of nature are used to calculate the expected return and standard deviation of stocks

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The answer is attached in excel file 3040

Recession 0.15 0.04 -0.2

Normal 0.75 0.08 0.2

Boom 0.1 0.16 0.6

Expected return= Expected return=Σprobability*return

Stock P =0.15*0.04+0.75*0.08+0.1*0.16= 0.082 or 8.20%

Stock ...

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