connect FINANCE Chapter 13RiskReturn Question 9of 10 1500 po

connect FINANCE Chapter 13-Risk&Return; Question 9(of 10) 15.00 polnts Consider the following information: Rate of Retun if State Occurs Probability of State of Economy 0 10 0 60 0.30 Stock Athena 0.02 009 0.15 State of Economy (a) Calculate the expected return for Stock Athena (Do not round your intermediate calculations.) Cick to select) (c) Calculate the standard devation for Stock Athena (Do not round your intermediate calculations.) Cick to select Referencos eBook & Resources Worksheet TOSHIBA F1 F2 F3 F4 FS F6 FT F8 F9

Solution

A.

Expected return of the stock = ?Probability_a * Expected return_a

                                             = .10 * .02 + .60 * 0.09 + .30 * .15

                                                 = 0.002 + 0.054 + 0.045

                                               = .101 or 10.1%

B.

Standard deviation = ?variance

Variance of the stock is calculated as follows

Probability

Return

(Return - expected return)

(Return - expected return)^2

(Return - expected return)^2 * Probability

0.1

0.02

-0.081

0.006561

0.000656

0.6

0.09

-0.011

0.000121

7.26E-05

0.3

0.15

0.049

0.002401

0.00072

Total

0.001449

Variance = 0.001449

Standard deviation = ?variance

Standard deviation =?0.001449

                                   = 0.03806 or 3.81%

Probability	Return	(Return - expected return)	(Return - expected return)^2	(Return - expected return)^2 * Probability
0.1	0.02	-0.081	0.006561	0.000656
0.6	0.09	-0.011	0.000121	7.26E-05
0.3	0.15	0.049	0.002401	0.00072
			Total	0.001449