An analyst has developed the following probability distribution for the rate of
ID: 3070179 • Letter: A
Question
An analyst has developed the following probability distribution for the rate of return for a common stock.
Calculate the expected rate of return. (Round intermediate calculations to at least 4 decimal places. Round your answer to 2 decimal places.)
b. Calculate the variance and the standard deviation of this probability distribution.
(Use the percentage values for your calculations (for example 10% not 0.10). Round intermediate calculations to at least 4 decimal places. Enter your answer as a percentage rounded to 2 decimal places.) Variance . %2 Standard deviation %
Scenario Probability Rate of Return 1 0.30 -6% 2 0.38 4% 3 0.32 28%Explanation / Answer
Ans:
a)Expected return=-0.30*6+0.38*4+0.32*28=8.68%
b)Variance=(-6-8.68)^2*0.30+(4-8.68)^2*0.38+(28-8.68)^2*0.32=192.42%
standard deviation=sqrt(192.42)=13.87%