Calculating expected return and standard deviation
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The annual returns, in percentages, on stocks A and B for three possible states of the economy are given in the table below.
Economy State Probability Stock A Stock B
Good 0.5 40 20
Average 0.3 20 40
Bad 0.2 10 8
1. If one invested in Stock A, what would be the expected annual percentage return?
2. If one invested in Stock A, what would be the standard deviation of the percentage return?
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Solution Summary
Solution depicts the steps to calculate expected return and standard deviation of returns in the given case.
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Please refer attached file for complete solution. Expressions typed with the help of equation writer are missing here.
Probability Returns
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Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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