If the economy is normal,Charleston Freight stock is expected to return 16.5 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?
A)0.010346
B)0.012634
C)0.013420
D)0.013927
E)0.014315

Question

Quizplus · Accepted Answer

E(r) = (0.80 × 0.165) + (0.20 × -0.116) = 0.1088Var = 0.80 (0.165 - 0.1088)² + 0.20 (-0.116 - 0.1088)² = 0.012634

If the Economy Is Normal,Charleston Freight Stock Is Expected to Return