Security Returns If State Occurs State of Economy Bust Boom Probability of State
ID: 2723861 • Letter: S
Question
Security Returns If State Occurs State of Economy Bust Boom Probability of State of Economy 20 80 Roll ROSS -13% 24 6 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.) State of Squared Return Deviation Probability of Return Deviation Economy Bust Boom Product State of Economy 20 80 from Expected Return Roll 2 Ross Bust 20 Boom 80 2 Standard Deviations Roll ROssExplanation / Answer
EXPECTED RETURN FOR ROLL
= 0.20 * -13% + 0.80 * 24%
= -2.6% + 19.2%
= 16.6%
STANDARD DEVIATION
=SQUARE ROOT OF 219.04
= 14.8%
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EXPECTED RETURN FOR ROSS
= 0.20 * 17% + 0.80 * 6%
= 3.4% + 4.8%
= 8.2%
STANDARD DEVIATION
=SQUARE ROOT OF 19.36
= 4.4%
ECONOMY PROBAPILITY RETURN DEVIATION FROM EXPECTED RETURN SQUARED RETURN OF DEVIATION PRODUCT BUST 0.20 -29.6% 876.16 175.232 BOOM 0.80 7.4% 54.76 43.808 SQUARE OF STANDARD DEVIATION 219.04