The probabilities of different returns on a stock over the year are:
Probability
Return
10%
?5%
15%
0%
20%
5%
30%
10%
25%
20%
?
a.Calculate the stock's expected return. b.Calculate the stock's standard deviation.
What will be an ideal response?
| a. | Expected return = (0.10 ×?5%) + (0.15 × 0%) + (0.20 × 5%) + (0.30 × 10%) + (0.25 × 20%) = 8.5% |
| b. | Standard deviation = {[0.10 × (?0.05 ? 0.085)2] + {[0.15 × (0.00 ? 0.085)2] + {[0.20 × (0.05 ? 0.085) 2] + {[0.30 × (0.10 ? 0.085)2] + {[0.25 × (0.20 ? 0.085)2] = 8.1% |
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