Calculating Returns and Standard Deviations Based on the following information, calculate the expected return and standard deviation: State of Economy Probability of SE Rate of Return If State Occurs Depression .15 -.148 Recession .30 .031 Normal .45 .162 Boom .10 .348

Calculating Returns and Standard Deviations Based on the following information, calculate the expected return and standard deviation: State of Economy Probability of SE Rate of Return If State Occurs Depression .15 -.148 Recession .30 .031 Normal .45 .162 Boom .10 .348

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter12: Capital Structure

Section: Chapter Questions

Problem 6PROB

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Question

11.6 Calculating Returns and Standard Deviations Based on the following information, calculate the expected return and standard deviation:

State of Economy Probability of SE Rate of Return If

State Occurs

Depression .15 -.148

Recession .30 .031

Normal .45 .162

Boom .10 .348

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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standard deviation is square root of variance

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