KNF stock is quite cyclical.In a boom economy,the stock is expected to return 30 percent in comparison to 12 percent in a normal economy and a negative 17 percent in a recessionary period.The probability of a recession is 25%.There is a 15% chance of a boom economy.What is the standard deviation of the returns this stock?
A)10.15%
B)12.60%
C)15.43%
D)17.46%
E)25.04%

Question

Quizplus · Accepted Answer

E(r)= (.15 × .30)+ (.60 × .12)+ (.25 × -.17)= .0745Var = .15 × (.30 - .0745)² + .60 × (.12 - .0745)² + .25 × (-.17 - .0745)² = .023815Std dev = √.023815 = .1543,or 15.43%

KNF Stock Is Quite Cyclical