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## If the economy booms, Meyer&Co. stock will have a return of 18.5 percent. If the economy goes into a recession, the stock will have a lo

Question

If the economy booms, Meyer&Co. stock will have a return of 18.5 percent. If the economy goes into a recession, the stock will have a loss of 7.6 percent. The probability of a boom is 71 percent while the probability of a recession is 29 percent. What is the standard deviation of the returns on the stock?

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2021-09-11T02:21:21+00:00
2021-09-11T02:21:21+00:00 1 Answer
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## Answers ( )

Answer:11.84% approx.Step-by-step explanation:Expected return = Respective return × Respective probabilities

= (18.5 × 0.71) + (-7.6 × 0.29)

= 10.931%

Probability Return Probability ×(Return – expected return)²0.71 18.5 0.71×(18.5 – 10.931)² = 40.67573

0.29 -7.6 0.29×(-7.6 – 10.931)² = 99.585409

Total =

140.261139%=

= 11.84319 ≈

11.84% approx.