Hull consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year in the following table below. The probability of a boom economy is 15%. The probability of a stable growth economy is 16%, the probability of a stagnant economy is 53%, and the probability of a recession is 16%. Calculate the variance and the standard deviation of the three investments: stock, corporate bond, and government bond. If the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you choose, considering both risk and return?

Click on the following icon ( in order to copy its contents into a spreadsheet.) Forecasted Retums for Each Economy Stable Investment Boom Growth Stagnant Recession Stock 29% 15% 4% 14% Corporate bond 10% 8% 6% 3% Government bond 9% 7% 5% 2% Print Done