Question 5 Please Complete all 7 Parts

Variance and standard deviation

(expected).

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:

Investment Forecasted Returns for Boom Economy Forecasted Returns for Stable Growth Economy Forecasted Returns for Stagnant Economy Forecasted Returns for Recession Economy Stock 27% 10% 5% -12% Corporate bond 10% 7% 5% 3% Government bond 9% 6% 4% 2%

The probability of a boom economy is

13%,

the probability of a stable growth economy is

15%,

the probability of a stagnant economy is

52%,

and the probability of a recession is

20%.

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?

Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. The input instructions, phrases in parenthesis after each answer box, only apply for the answers you will type.

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Part 1

What is the variance of the stock investment?

enter your response here%

(Round to six decimal places.)