Based on historical information, the distribution of the annual return on Flavorite stock depends on market conditions. The expected annual return for (1) a boom market, (2) an up market, (3) a flat market, (4) a down market, and (5) a crash are shown in the center colum as xi's. The historical probability of each market condition is shown in the right colum as pi's. a. What is the expected annual return of Flavorite stock? b. What is the variance of the annual return of Flavorite stock? c. What is the standard deviation of the annual return of Flavorite stock? d. Assume you work for Flavorite, and are offered a deal to purchase company stock at the beginning of the year. For a fixed fee of 1%, the company will double your annual return on company stock. Using the rules for scaling and translation distributions, what is the expected return on this stock deal? What is the standard deviation of the return on this stock deal?      xi pi 1 Boom Market 21%                0.12 2 Up Market 10%                0.28 3 Flat Market 6%                0.35 4 Down Market -2%                0.19 5 Crash -13%                0.06

Question
Based on historical information, the distribution of the annual return on Flavorite stock depends on market conditions. The expected annual return for (1) a boom market, (2) an up market, (3) a flat market, (4) a down market, and (5) a crash are shown in the center colum as xi's. The historical probability of each market condition is shown in the right colum as pi's.
a. What is the expected annual return of Flavorite stock?
b. What is the variance of the annual return of Flavorite stock?
c. What is the standard deviation of the annual return of Flavorite stock?
d. Assume you work for Flavorite, and are offered a deal to purchase company stock at the beginning of the year. For a fixed fee of 1%, the company will double your annual return on company stock. Using the rules for scaling and translation distributions, what is the expected return on this stock deal? What is the standard deviation of the return on this stock deal? 
    xi pi
1 Boom Market 21%                0.12
2 Up Market 10%                0.28
3 Flat Market 6%                0.35
4 Down Market -2%                0.19
5 Crash -13%                0.06

 

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