Suppose your expectations regarding the stock market are as follows State of the Economy Boom Normal growth Recession 0.2 0.6 0.2 42% 17 E(r) = Σ p(s) r(s) Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Mean Standard deviation
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Expert Answer
State of Economy
Probability
HPR
Boom
0.2
42%
Normal Growth
0.6
23%
Recession
0.2
-17%
MEAN:
Expected Return = (0.2*42%)+(0.6*23%)+(0.2*(-17%))
mean=
18.80%
Variance = [0.2*{(42%-18.80%)^2}}+[0.6*{(23%-18.80%)^2}]+[0.2*{(-17%-18.80%)^2}]
variance =
3.7456%
Standard Deviation = sqrt (Variance)
Standard Deviation =
19.35%
Answer:
MEAN
18.80%
STANDARD DEVIATION
19.35%