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Question:
Based on the following information calculate the expected return and standard deviation for two stocks:
State of Economy Recession Normal Boom
Probability of State of Economy .15 .55 0.30
Rate of Return if State Occurs
Stock A .04 .09 .17
Stock B -.17 .12 .27
Answer:
The expected return of stock A is 10.65%
The expected return of stock B is 12.15%
The standard deviation of stock A is 4.5%
The standard deviation of stock B is 13.92%
Explanation:
The expected return of stock A is given by

Therefore, the expected return of stock A is 10.65%
The expected return of stock B is given by

Therefore, the expected return of stock B is 12.15%
The standard deviation of stock A is given by
Therefore, the standard deviation of stock A is 4.5%
The standard deviation of stock B is given by
Therefore, the standard deviation of stock B is 13.92%