Question
10. What is the expected standard deviation of stock As returns based on the information presented in the table? Outcome Probability of outcome Stock A
10. What is the expected standard deviation of stock As returns based on the information presented in the table?
Outcome | Probability of outcome | Stock A return in outcome |
Good | 20.0% | 75.0% |
Medium | 50.0% | 14.0% |
Bad | 30.0% | -40.0% |
A. 40.04% (plus or minus 0.10 percentage points) (RIGHT ANSWER IS A)
B. 43.86% (plus or minus 0.10 percentage points)
C. 57.54% (plus or minus 0.10 percentage points)
D. 46.98% (plus or minus 0.10 percentage points)
E. The expected standard deviation can not be estimated because the probability of the bad outcome is not given or the standard deviation can be computed from the given information, but none of the above is within 0.10 percentage points of the correct answer
PLEASE SHOW WORK AND EXPLAIN. I USED THESE FORMULAS AND I GOT THE WRONG ANSWER:
Variance of returns based on future outcomes = {p(1) [R(1) E(R)]2} + {p(2) [R(2) E(R)]2} =
Standard deviation of returns based on future outcomes = variance of returns based on future outcomes
Thank you!
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