Derive the expected returns and the standard deviation of returns for the two assets above.
Derive the expected returns and the standard deviation of returns for the two assets above.
Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018
18th Edition
ISBN:9780079039897
Author:Carter
Publisher:Carter
Chapter10: Statistics
Section10.4: Distributions Of Data
Problem 19PFA
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Question
Consider the case of two financial assets and three market conditions (states). The table
below gives the respective probability for each market condition and the return of each asset
in each one of them.
Market Conditions
| State | Recession | Normal | Expansion |
| Probability of state | 30% | 40% | 30% |
| Return of asset A | -30% | 20% | 55% |
| Return of asset B | -10% | 70% | 0% |
a. Derive the expected returns and the standard deviation of returns for the two assets
above.
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