The following data represent the probability distribution of the holding period returns for an investment in Lazy Rapids Kayaks (LARK) stock. Probability, p(s) 0.356 0.444 0.20 HPR 30.00% 7.90% -18.60% State of the Economy Scenario #(s) Boom Normal growth Recession a. What is the expected return on LARK? (Round your answer to 2 decimal places.) Expected return b. What is the standard deviation of the returns on LARK? (Round your answer to 2 decimal places.) Standard deviation
Expert Answer
a) Expected Return E(r) = (pBoom*HPRBoom)+(pNormal growth*HPRNormal growth)+(pRecession*HPRRecession)
E(r) = (0.356*30%)+(0.444*7.9%)+(0.2*-18.6%) = 10.47 %
b) Standard Deviation = SQRT{Σ pi*(HPRi-E(r))2] where i
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