E(R) = p,R. Formulas: 16 =P, (R E(R)) EP Chapter 13: Find the expected return and standard deviation for the two stocks Cand T below. EXPECTED RETURN 1 2 3 (1)x (2) (1) (3) State of E(RC) per state E(Rt) per state of economy Prob. of economy economy Prob x E(Rc) per state Prob x E(Rt) per state Boom 20% 14% 10% Normal 30% 8% 20% Recession 50% 5% 26% Total: E(RC) E(RC) E(Rt) E(Rt) How to find the Standard Deviation of A STOCK GIVEN RETURNS AND PROBABILITIES PER STATE OF ECONOMY (4) (3) squared (2) E(Rc) per state of economy 14% 8% 5% (3) (2) - E(RC) E(RC) per state of economy - E(RC) (5) (1) xl (4) Prob x (E(Rc) per state - E(Rc))^2 VARIANCE &(1) State of economy Prob. Boom 20% Normal 30% Recession 50% (E(RC) per state - E(Rc))^2 (3) (2) - E(Rt) E(Rt) per state of economy - E(Rt) TOTAL: =VAR. Square root of VARIANCE = =ST DEV. (4) (5) (3) squared (1) x( (4) Probx (E(Rt) per state (E(Rt) per state - E(Rt))^2 - E(Rt))^2 (2) E(Rt)/state of economy 10% 20% State of economy Boom Normal Recession Prob. 20% 30% 50% 26% TOTAL: Square root of VARIANCE = =VAR =ST DEV