Variance and standard deviation

(expected).

Bacon and Associates, a famous Northwest think tank, has provided probability estimates for the four potential economic states for the coming year in the following table:

LOADING.... The probability of a boom economy is 22%, the probability of a stable growth economy is 40%, the probability of a stagnant economy is 21% and the probability of a recession is 17%.

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.

Table below

Investment	Forecasted Returns for Boom Economy	Forecasted Returns for Stable Growth Economy	Forecasted Returns for Stagnant Economy	Forecasted Returns for Recession Economy
Stock	25%	15%	4%	-13%
Corporate bond	9%	8%	5%	4%
Government bond	8%	7%	4%	3%