Calculating Returns and Standard Deviations [LO1]

Consider the following information:

Rate of Return If State Occurs

State of economy Probability of economy Stock A Stock B

Recession .20 .05 -.18

Normal .55 .08 . 11

Boom .25 .13 .28

Calculate the expected return for each stock.

Expected Return

Stock A %

Stock B %

Calculate the standard deviation for each stock.

Standard Deviation

Stock A %

Stock B %