I need help on subpart b - the standard deviation for stock x
Continuous Probability Distributions
Probability distributions are of two types, which are continuous probability distributions and discrete probability distributions. A continuous probability distribution contains an infinite number of values. For example, if time is infinite: you could count from 0 to a trillion seconds, billion seconds, so on indefinitely. A discrete probability distribution consists of only a countable set of possible values.
Normal Distribution
Suppose we had to design a bathroom weighing scale, how would we decide what should be the range of the weighing machine? Would we take the highest recorded human weight in history and use that as the upper limit for our weighing scale? This may not be a great idea as the sensitivity of the scale would get reduced if the range is too large. At the same time, if we keep the upper limit too low, it may not be usable for a large percentage of the population!
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You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000
investment in each stock under four different economic conditions has the probability distribution shown to the
right. Complete parts (a) through (c) below.
Returns
Economic
ProbabilityCondition
Stock X Stock Y
0.1
Recession
- 60
-80
02
Slow growth
Moderate growth
Fast growth
20
60
0.4
110
140
0.3
170
210
a. Compute the expected return for stock X and for stock Y.
The expected return for stock X is 93
(Type an integer or a decimal. Do not round.)
The expected return for stock Y is 123
(Type an integer or a decimal. Do not round.)
b. Compute the standard deviation for stock X and for stock Y
Incorrect: 0
The standard deviation for stock X is
(Round to two decimal places as needed.)
1.
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