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    Calculating the expected return and standard deviation

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    Consider the following probability distribution of returns for Alpha Corporation:

    Current Stock Price ($25):
    One Year ($) $35, $25, $20;
    Return R: 40%, 0%, -20%;
    Probability PR: 25%, 50%, 25%.

    (A). Compute the expected return for Alpha Corporation.
    (B). Compute the standard deviation of the return on Alpha Corporation.

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    Solution Preview

    Please refer attached file for better clarity of tables and missing formulas.

    Expected Return
    Probability, P Return(R) P*R
    0.25 40% 0.1
    0.50 0% ...

    Solution Summary

    The solution describes the steps to calculate the expected return and standard deviation in the given case.