Problem
An investment adviser is considering investing in one of the following stocks:
|
State of the Economy
|
Likelihood of Occurrence
|
Rate of Return Share M
|
Rate of Return Stock P
|
|
Expansion
|
60%
|
18%
|
-8%
|
|
Recession
|
40%
|
-15%
|
22%
|
1. What is the expected return on each stock?
2. What will be the standard deviations for actions M and P?