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Consider the following information: Rate of Return If State Occurs Probability of State of State of Economy Stock A Stock B Economy Recession 16 04 - 20 Normal .61 08 .09 Boom 23 15 26

Consider the following information: Rate of Return If State Occurs Probability of State of State of Economy Stock A Stock B Economy Recession 16 04 - 20 Normal .61 08 .09 Boom 23 15 26

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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### Economic State Analysis for Stock Returns #### Consider the following information: | State of Economy | Probability of State of Economy | Rate of Return If State Occurs | |------------------|--------------------------------|--------------------------------------| | | | Stock A | Stock B | | Recession | 0.16 | 0.04 | -0.20 | | Normal | 0.61 | 0.08 | 0.09 | | Boom | 0.23 | 0.15 | 0.26 | ### Tasks: a. **Calculate the expected return for Stocks A and B.** (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. **Calculate the standard deviation for Stocks A and B.** (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) ### Answer Box: | | | % | |------------|---------------------------------|----------------| | a. | Stock A expected return | | | | Stock B expected return | | | b. | Stock A standard deviation | | | | Stock B standard deviation | |
Transcribed Image Text:### Economic State Analysis for Stock Returns #### Consider the following information: | State of Economy | Probability of State of Economy | Rate of Return If State Occurs | |------------------|--------------------------------|--------------------------------------| | | | Stock A | Stock B | | Recession | 0.16 | 0.04 | -0.20 | | Normal | 0.61 | 0.08 | 0.09 | | Boom | 0.23 | 0.15 | 0.26 | ### Tasks: a. **Calculate the expected return for Stocks A and B.** (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. **Calculate the standard deviation for Stocks A and B.** (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) ### Answer Box: | | | % | |------------|---------------------------------|----------------| | a. | Stock A expected return | | | | Stock B expected return | | | b. | Stock A standard deviation | | | | Stock B standard deviation | |
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