Expected return and standard deviation of two stocks with returns stated for different states of economy- Recession, Normal, Boom
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
...0.15*-0.2+0.75*0.2+0.1*0.6= 0.18 or 18.00%
Variance =Σprobability*(Return-Average return)2
Probability of Stock P
State of Economy Rate of Return, if State ...