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:

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.

The probability of a boom economy is

13%,

the probability of a stable growth economy is

17%,

the probability of a stagnant economy is

50%,

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?

enter your response here%

(Round to six decimal places.)

What is the standard deviation of the stock investment?

enter your response here%

(Round to two decimal places.)

What is the variance of the corporate bond investment?

enter your response here%

(Round to six decimal places.)

What is the standard deviation of the corporate bond investment?

enter your response here%

(Round to two decimal places.)

What is the variance of the government bond investment?

enter your response here%

(Round to six decimal places.)

What is the standard deviation of the government bond investment?

enter your response here%

(Round to two decimal places.)

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?(Select the best response.)

A.

The corporate bond would be the best choice because it has the highest expected return and the lowest risk.

B.

The government bond would be the best choice because it has the lowest risk.

C.

The stock investment would be the best choice because it has the highest volatility and therefore the best chance of a high return.

D.

There is not enough information to make this decision.

Investment	Forecasted Returns for Each Economy
	Boom		Stable Growth		Stagnant		Recession
Stock	20%		10%		5%		11%
Corporate bond	9%		7%		5%		3%
Government bond	8%		6%		4%		2%