Problem 11-5 Calculate the standard deviations for Roll and Ross by filling in t

Question

Problem 11-5

Calculate the standard deviations for Roll and Ross by filling in the following table (verify your answer using returns expressed in percentages as well as decimals): (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your Standard deviation answers to 2 decimal places and other answers to 4 decimal places. Omit the "%" sign in your response.)

Security Returns If State Occurs   State of
  Economy Probability of
  State of Economy         Roll        Ross   Bust .30 –11 % 12 %   Boom .70 29 5

Explanation / Answer

State of    Probability of    Return Deviation     Squared Return      Product Economy   State of Economy   from Expected Return Deviation   Roll     Bust 0.3 -28 784 235.2     Boom 0.7 12 144 100.8     2 = 336     = squareroot(336) =18.33   Ross     Bust 0.3 4.9 24.01 7.203     Boom 0.7 -2.1 4.41 3.087     2 = 10.29     squareroot(10.29) =3.21 Standard Deviations   Roll 18.33   Ross 3.21

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