1. There are three states of the economy: Low, Medium, and High, with probabilities 25%(Low), 50% (Medium), and 25%(High). A bond fund has returns 8% in Low, 5% in Medium, and 2% in High. What is the standard deviation of the bond fund's returns?
A. 4.5%
B. .00045%
C. 2.12%
D. 3.97%
2. Suppose you bought 300 shares of stock at an initial price of $54 per share. The stock paid a dividend of $0.30 per share during the following year, and the share price at the end of the year was $56.
What is the capital gains yield?
A. 4.26%
B. -3.70%
C. 3.70%
D. $2.30
E. 0.56%
3. There are two states of the world, Boom and Bust. Boom occurs with 55% probability and Bust occurs with 45% probability. Stock Alpha has 21% return in a Boom and -8% return in a Bust. What is the expected return of stock Alpha?
A. 10%
B. 7.95%
C. 6.50%
D. 14.50%