Asked by juan manuel iglesias on Jun 28, 2024
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You have been given this probability distribution for the holding-period return for a stock: Stock of the Economy ProbabilityHPR Boom 0.4022% Normal growth 0.3511% Recession 0.25−9%\begin{array}{lcc} \text { Stock of the Economy } & \text { Probability} & \text {HPR } \\ \text { Boom } &0.40&22\%\\ \text { Normal growth } &0.35&11\%\\\text { Recession }&0.25&-9\%\end{array} Stock of the Economy Boom Normal growth Recession Probability0.400.350.25HPR 22%11%−9%
What is the expected standard deviation for the stock?
A) 2.07%
B) 9.96%
C) 7.04%
D) 1.44%
E) None of the options are correct.
Expected Standard Deviation
A measure of the amount by which an asset's return is expected to deviate from its average return, used as an indicator of the risk associated with the asset.
Probability Distribution
A function used in statistics to illustrate all potential outcomes and their respective probabilities for a random variable within a fixed range.
Stock of the Economy
This term typically refers to the total value of all goods and resources available in an economy at a given point in time.
- Gain insight into the fundamental idea and mathematical determination of expected returns and their corresponding standard deviation.
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Learning Objectives
- Gain insight into the fundamental idea and mathematical determination of expected returns and their corresponding standard deviation.
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