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Standard Deviation of expected returns

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During a normal economy, the common stock of Douglass & Frank is expected to return 12.5 percent. During a recession, the expected return is -5 percent and during a boom, the expected return is 18 percent. The probability of a normal economy is 65 percent while the probability of a recession is 25 percent and the probability of a boom is 10 percent. What is the standard deviation of these expected returns?
a. 8.06 percent
b. 8.68 percent
c. 10.33 percent
d. 11.47 percent

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Solution Summary

The solution explains how to calculate the Standard Deviation of expected returns

Solution Preview

We first calculate the expected return on the stock
Expected return = Sum (Probability X return)
Expected return = ...

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