Question

Calculate the standard deviation of this scenario Outcome 1: Recession. Probability = 40%. Return = 7.38%. Outcome 1: Recovery. Probability = 60%. Return = 17.27%.

Answer 1

Answer:

4.845%

Explanation:

Expected return X = 0.40 * 7.38% + 0.60 * 17.27%

Expected return X = 0.02952 + 0.10362

Expected return X = 0.13314

Expected return X = 13.314%

Particulars   Prob.   Return(x)   (x-Xbar)   (x-Xbar)^2   Prob*(x-Xbar)^2

Recession     40%      7.38%      -5.9340%  0.3521%            0.1408%

Recovery       60%     17.27%      3.9560%   0.1565%           0.0939%

Sum                                                                                        0.2347%

Standard deviation = $\sqrt{Sumof Prob*(x-Xbar)^2}$

Standard deviation = $\sqrt{0.002347}$

Standard deviation = 0.0484458461

Standard deviation = 4.845%