Problem 4 Intro We know the following expected returns for stocks A and B, given different states of the economy: State (s) Probability Eras) E(TB,s) Recession 0.1 -0.04 0.04 Normal 0.5 0.11 0.07 Expansion 0.4 0.19 0.11 Attempt 1/10 for 10 pts. Part 1 What is the expected return for stock A? Correct The expected return is the weighted average return across all states of the economy: E(TA) = (P.E("A,.)) = 0.1 (-0.04) + 0.5 * 0.11 + 0.4 0.19 = 0.127 HVA EL PMVA,s) = 0.1 * (-0.04) + 0.5 * 0.11 +0.4 0.19 = 0.127 IB Attempt 3/10 for 10 pts. Part 2 What is the expected return for stock B? Correct E(TB) = (p, E(Tb,.)) = 0.1 0.04 + 0.5 0.07 + 0.4 0.11 = 0.083 Attempt 1/10 for 10 pts. Part 3 What is the standard deviation of returns for stock A? 3+ decimals Submit