If the economy is normal, Charleston Freight stock is expected to return 15.7 percent. If the economy falls into a recession, the stock's return is projected at a negative 11.6 percent. The probability of a normal economy is 80 percent while the probability of a recession is 20 percent. What is the variance of the returns on this stock?

Question

Quizplus · Accepted Answer

E(r) = (0.80 F1F1F1S1F1F1F10 0.157) + (0.20 F1F1F1S1F1F1F10 -0.116) = 0.1024Var = 0.80 (0.157 - 0.1024)² + 0.20 (-0.116 - 0.1024)² = 0.011925

If the Economy Is Normal, Charleston Freight Stock Is Expected