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# Solve: For the Expected Return

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Please see the attached word document to view the expected return problems.

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Consider the following information:

Rate of Return If State Occurs
State of Probability of ________________________________________
Economy State of Economy Stock A Stock B
Recession 0.17 0.05 − 0.21
Normal 0.62 0.09 0.08
Boom 0.21 0.16 0.25
________________________________________

Calculate the expected return for the two stocks. (Round your answers to 2 decimal places. (e.g., 32.16))

Expected return
Stock A %

Stock B %

________________________________________

Calculate the standard deviation for the two stocks. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Standard deviation
Stock A %

Stock B %

#### Solution Preview

Expected return of A = 0.17 X 0.05 + 0.62 X 0.09 + 0.21 X 0.16 = 0.0979

Expected return of B = 0.17 X -0.21 + 0.62 X 0.08 + ...

#### Solution Summary

The expected return and standard deviations for the two stocks are given.

\$2.19