1. Assume you have predicted the following returns for Stock A and B in four possible states of the economy.
What is the expected return of each stock? Calculate the variance and standard deviation for Stocks A and B.
|
State
|
Probability
|
Stock A Return
|
Stock B Return
|
|
Expansion
|
.15
|
22%
|
17%
|
|
Normal
|
.50
|
15%
|
12%
|
|
Mild Recession
|
.20
|
5%
|
2%
|
|
Recession
|
.15
|
1%
|
-2%
|
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