KNF stock is quite cyclical.In a boom economy,the stock is expected to return 34 percent in comparison to 13 percent in a normal economy and a negative 22 percent in a recessionary period.The probability of a recession is 15 percent while the chance of a boom is 4 percent.What is the standard deviation of the returns this stock?

Question

Quizplus · Accepted Answer

E(r)= 0.04(0.34)+ 0.81(0.13)+ 0.15(−0.22)= 0.0859 σ = [0.04(0.34 − 0.0859)² + 0.81(0.13 − 0.0859)² + 0.15(−0.22 − 0.0859)²]^0.5 = 0.1349,or 13.49%

KNF Stock Is Quite Cyclical