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 https://d2vlcm61l7u1fs.cloudfront.net/media%2Fabe%2Fabe41261-487b-44f8-8a90-c3668d3216c1%2Fphp5i81iS.png

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
https://d2vlcm61l7u1fs.cloudfront.net/media%2Fabe%2Fabe41261-487b-44f8-8a90-c3668d3216c1%2Fphp5i81iS.png

Solution

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%