Question

.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

Answer 1

Answer:

variance 0.163849748

Explanation:

$\sum \frac{(x- mean)^2}{n}$

$\left[\begin{array}{cccc}State&Return&Probability&Weight\\recession&0.2&-0.116&-0.0232\\fail&0.8&0.165&0.132\\Total&&0.049&0.1088\\\end{array}\right]$

The mean average return will be 0.1088

(  (0.165 - 0.1088)² + (-0.116-0.1088)²   )  / 2  =

( 0,00315844 + 0,05053504‬ ) / 2 = 0,02684674‬

Now, we calcualate the root:

²√0,02684674‬ = 0.163849748