Problem 11-8 Consider the following information: Calculate the expected return f
ID: 2709166 • Letter: P
Question
Problem 11-8
Consider the following information:
Calculate the expected return for the two stocks. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Calculate the standard deviation for the two stocks. (Do not round your intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Recession .30 .03 –.11 Normal .55 .14 .18 Boom .15 .18 .38Explanation / Answer
Ans) Scenario Probability Return Stock A Expected Retun on Stock A Deviation D % D^2 Variance (P* D^2) 1 0.3 0.03 0.009 -0.083 0.0069 0.002 2 0.55 0.14 0.077 0.027 0.0007 0.000 3 0.15 0.18 0.027 0.067 0.0045 0.001 0.113 0.003 Scenario Probability Return Stock B Expected Return on Stock B Deviation D % D^2 Variance (P* D^2) 1 0.3 -0.11 -0.033 -0.233 0.0543 0.016 2 0.55 0.18 0.099 0.057 0.0032 0.002 3 0.15 0.38 0.057 0.257 0.0660 0.010 0.123 0.028 a. Calculate the expected return for the two stocks. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Expected Retun of Stock A = 11% Expected Return of Stock B = 12% b. Calculate the standard deviation for the two stocks. (Do not round your intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Standard deviation for A Square of Variance 0.003 0.056 Standard deviation for B Square of Variance 0.028 0.167