Chapter 13: Find the expected return and standard deviation for the two stocks XYZ and ABC below. How to find the Expected Return of A STOCK GIVEN RETURNS AND PROBABILITIES PER STATE OF ECONOMY Formulas: ECR)=EPR -EPKR EXR9 (1)x (3) Prob x E(Rabc) per state EXPECTED RETURN 1 2 (1)x (2) E(Rxyz) per E(Rabc) per State of state of state of economy Prob. economy economy Prob x Exyz) per state Boom 20% 23% 18% Normal 30% 15% 24% Recession 50% 8% 31% Total: E(RXYZ) E[Rxy?) E(Rabe) How to find the Standard Deviation of A STOCK GIVEN RETURNS AND PROBABILITIES PER STATE OF ECONOMY E[Rabc) (3) VARIANCE & (2) (3) squared (5) (1) { [4) State of economy Boom Normal Recession Prob. 20% 30% 50% (2) EfRxyz) per state of economy 23% 15% 8% SVAR -ST DEV TOTAL Square root of VARIANCE (4) (3) squared (3) (5) (1) State of economy Boom Normal Recession Prob. 20% 30% 50% (2) E(Rabc) per state of economy 18% 24% 31% TOTAL: Square root of VARIANCE VAR ST DEV