Question: Question: The expected possible outcomes for Roxy Stock are below. What is the expected return? What is the... The expected possible outcomes for Roxy Stock
Question: The expected possible outcomes for Roxy Stock are below. What is the expected return? What is the...
The expected possible outcomes for Roxy Stock are below. What is the expected return? What is the expected variance? What is the expected standard deviation?
| Outcome | Probability | Return |
| Recession | 40% | -25% |
| Expansion | 25% | 20% |
| Boom | 35% | 45%
|
Here is what I am getting - I think there is a disconnect with my totals. Can you please point me in the right direction?
| Outcome | Return (Re) | Probability(P) | Expected Return (Er) | Re-Er | (Re-Er)2 | P x (Re-Er)2 = this will give you Variance number | ||||
| Recession | -0.25 | 0.4 | (-25x.4)= -0.1 | (-.25-(-.1)) = .35 | (.35)2 =.1225 | (0.4) x (.1225) = 0.049 | ||||
| Expansion | 0.2 | 0.25 | (0.2x.25)= .05 | (.2-.05) = .15 | (.15)2 = .0225 | (.25) x (.0225) = 0.005625 | ||||
| Boom | 0.45 | 0.35 | (.45x.35)= .1575 | (.45-.1575) = .2925 | (.2925)2 = .0856 | (.35) x (.0856) = 0.02996 | ||||
| Total | 10.75% | Variance = | .084585 or 8.46% | |||||||
| Standard Deviation = Square Root of Variance = 29.08% | ||||||||||
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