A Use the following information on states of the economy and

A.

Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the \"%\" sign in your response.)

B.

Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the \"%\" sign in your response.)

Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the \"%\" sign in your response.)

Solution

1) Expected Return of a stock is the mean of returns for the forcasted period. Mean = Sum of Probability x returns State Probability Return if state occurs(x) Prob. X Return (p) A A Recession 0.40 -5.5 -2.20 Normal 0.40 11.0 4.40 Boom 0.20 17.0 3.40 5.60 Expected return = 5.60% 2) State Probability Return if state occurs(x) Prob. X Return (x - Mean) (x - Mean)^2 P x (x - mean)^2 (p) A A A A A Recession 0.30 -6.5 -1.95 -12.4 152.52 45.76 Normal 0.55 9.0 4.95 3.2 9.92 5.46 Boom 0.15 19.0 2.85 13.2 172.92 25.94 5.85 77.15 Standard deviation of stock = Sq. Root of variance Variance = Sum of (P x (x - Mean)^2) Standard deviation of stock = sq. root (77.15) 8.78