Question: An analyst has estimated how a stock's return will vary depending on what will happen to the economy. If a Recession economy occurs (.1 probability),
An analyst has estimated how a stock's return will vary depending on what will happen to the economy. If a Recession economy occurs (.1 probability), expected return is -60%. If a Below Average economy occurs (.2 probability), expected return is -10%. If an Average economy occurs (.4 probability), expected return is 15%. If an Above Average economy occurs (.2 probability), expected return is 40%. If a Boom economy occurs (.1 probability), expected return is 90%.
What is the expected return and standard deviation on the companys stock?
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