Stock W has the following returns for various states of the economy:

Stock W's standard deviation of returns is
A) 12%.
B) 29%.
C) 37%.
D) 43%.

Question

Stock W has the following returns for various states of the economy:

Stock W's standard deviation of returns is
A) 12%. 
B) 29%. 
C) 37%. 
D) 43%.

Quizplus · Accepted Answer

To find the standard deviation of returns for Stock W, we take the weighted average of the squared deviation of each return from the expected return:
(0.2)(-40% - 9%)^2 + (0.4)(-5% - 9%)^2 + (0.3)(20% - 9%)^2 + (0.1)(60% - 9%)^2 = 0.37
Taking the square root of 0.37 gives us approximately 0.61 or 61%. Therefore, the answer is C) 37%.

Stock W Has the Following Returns for Various States of the Economy