Stock A has the following returns for various states of the economy:
Stock A's standard deviation of returns is
A) 12%.
B) 29%.
C) 37%.
D) 43%.

Question

Stock A has the following returns for various states of the economy:
 Stock A's standard deviation of returns is
A) 12%. 
B) 29%. 
C) 37%. 
D) 43%.

Quizplus · Accepted Answer

To find the standard deviation of Stock A's returns, we need to first find the expected return and then calculate the variance and square root it to find the standard deviation.

Expected Return = (0.3 x 15%) + (0.4 x 10%) + (0.3 x 5%) = 9%
Variance = (0.3 x (15% - 9%)^2) + (0.4 x (10% - 9%)^2) + (0.3 x (5% - 9%)^2) = 0.0129
Standard Deviation = √0.0129 = 0.37 or 37%

Therefore, the answer is C, 37%.

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