The probability distributions of possible returns for Stocks X and Y are as follows: Economic State Probability X Y Recession 0.2 -15% -5% Normal 0.6 20% 15% Boom 0.2 30% 25% Calculate the expected...

90.2K

Verified Solution

Question

Finance

The probability distributions of possible returns for Stocks Xand Y are as follows:
EconomicState               Probability                 X                    Y
Recession                            0.2                          -15%              -5%
Normal                                0.6                          20%                15%
Boom                                  0.2                          30%                25%
Calculate the expected return on each stock. Show yourcalculations. (8 points)
Calculate the standard deviation for each stock. Show yourcalculations. (10Points)
Which stock do you consider riskier? Explain. (2Points)
In which stock would you prefer to invest? Explain. (2Points)

Answer & Explanation Solved by verified expert

3.6 Ratings (637 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

The probability distributions of possible returns for Stocks Xand Y are as follows:EconomicState Probability X YRecession 0.2 -15% -5%Normal 0.6 20% 15%Boom 0.2 30% 25%Calculate the expected return on each stock. Show yourcalculations. (8 points)Calculate the standard deviation for each stock. Show yourcalculations. (10Points)Which stock do you consider riskier? Explain. (2Points)In which stock would you prefer to invest? Explain. (2Points)