Solve the following:
Q: You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for $1000 investment in each stock under four different economic conditions has the following probability distribution:
|
|
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Returns
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Probability
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Economic Condition
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Stock X (in $'s)
|
Stock Y (in $'s)
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0.1
|
Recession
|
- 50
|
- 100
|
|
0.3
|
Slow growth
|
20
|
50
|
|
0.4
|
Moderate growth
|
100
|
130
|
|
0.2
|
Fast growth
|
150
|
200
|
Note: Return means the net change in your initial investment ($1000) after a year, for example, Return=-100 (negative return), it means that after one year, your wealth become $900.
(a) Compute the expected return for stock X and for stock Y.
(b) Compute the standard deviation for stock X and for stock Y.