Question
Calculating Returns and Standard Deviations Based on the following information, calculate the expected return and standard deviation: State of Economy Probability of State of Economy
Calculating Returns and Standard Deviations Based on the following information, calculate the expected return and standard deviation:
State of Economy Probability of State of Economy Rate of Return if State Occurs
Depression .15 -.105
Recession .30 .059
Normal .45 .130
Boom .10 .211
I found an example online, but wasn't able to follow the math to get the answer. Please walk me through this, FOLLOWING THIS GENERAL EXAMPLE:
http://www.chegg.com/homework-help/determining-portfolio-weights-portfolio-weights-portfolio-95-chapter-11-problem-6SQP-solution-9780073382333-exc
Here is the part that I couldn't figure:
A2 = .15(.06 - .0765)2 + .65(.07 - .0765)2 + .20(.11 - .0765)2 = .00029 (Correct, according to the example)
Here is my attempt at figuring it:
Figure. = .15(-.0165)2 + .65(-.0065)2 + .20(.0335)2
=.15 (-0.00027225) + .65 (-0.00004225) + .20(0.00112225)
= -.000408375 + -.0000274625 + .00022445
= .0006602875 (WRONG)
Please, for the love of humanity, do not just post the math without a walkthrough. I am horrible at math, and am trying to learn this at an old age.
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