Homework SourseCalculate the expected standard deviation on stock State of
Calculate the expected standard deviation on stock:
| State of the economy | Probability of the states | Percentage returns | |
|---|---|---|---|
| Economic recession | 15% | 1% | |
| Steady economic growth | 32% | 9% | |
| Boom | Please calculate it | 11% |
Solution
probability of boom = 1 - 0.15 - 0.32 = 0.53
mean = sum of column 3 = 8.86%
Standard deviation = square root (sum of column 4) = 3.42%
| p(x) | return | p*x | p*(x - mean)^2 |
| 0.15 | 1% | 0.0015 | 0.0009267 |
| 0.32 | 9% | 0.0288 | 0.0000006 |
| 0.53 | 11% | 0.0583 | 0.000242719 |
