**Show All Formulas

Question 1- Complete the table below to calculate the expected Return, Variance, and Standard Deviation for the stocks of Home Depot, Inc (HD) and Lowe's Companies, Inc (LOW) given the different states of the economy. Which stock would we expect to be more volatile/risky? (25 points) Home Depot Inc (HD) Deviation from Expected Return Squared Deviation from Expected Return Product (2) * (6) Product State of Economy Boom Normal Recession Probability of Return if State State Occury 10.10 29. 10% 0.60 15.92 10.30 74999 Expected return = Variance = Std. Dev = Lowe's Companies, Inc (LOW) Deviation from Expected Return Squared Deviation from Expected Return Product (2) (6) Product State of Economy Boom Normal Recession Probability of Return it Store Srote Occurs 0.10 32.91% 0.60 11 329 0.30 - 12.599 Expected return = Variance = Std. Dev = Most volatile stock? Question 2 - Your portfolio has four stocks (A, B, C, D) of different weights. Use the information below to complete the following table and calculate the Expected Return, Variance, and Standard Deviation for the portfolio given the different states of the economy. (15 points) Return if State Occurs Probability of State 0.06 0.20 Stock A 42.00% 19.00% Stock B 34.00% State of Economy Boom Good Normal Poor Stock C 30.00% Stock D -22.00% EN 2.00% 5.00% -3.00% 11.00% -9.00% -4.00% -22.00% Bust -15.0076 -18.00 27.00% Portfolio Weights 0.19 Squared Deviation from Expected Return Deviation from Expected Return Probability of State Product Return if State Occurs Product (2) x (6) State of Economy Boom Good Normal Poor Bust Portfolio expected return = Portfolio variance = Portfolio Std. Dev =