Variance and standard deviation (expected). Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year. The probability of a boom economy is 13%, the probability of a stable growth economy is 17%, the probability of a stagnant economy is 55%, and the probability of a recession is 15%. Calculate the variance and the standard deviation of the three investments: stock, corporate bond, and government bond. If the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you choose, considering both risk and return? Investment Forecasted Returns for Each Economy Boom Stable Growth Stagnant Recession Stock 25% 12% 7% −10% Corporate bond 9% 7% 5% 3% Government bond 8% 6% 4% 2% Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. What is the variance of the stock investment? nothing% (Round to six decimal places.) What is the standard deviation of the stock investment? (Round to two decimal places.) What is the variance of the corporate bond investment? (Round to six decimal places.) What is the standard deviation of the corporate bond investment? (Round to two decimal places.) What is the variance of the government bond investment? (Round to six decimal places.) What is the standard deviation of the government bond investment? (Round to two decimal places.)
Variance and standard deviation (expected). Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year. The probability of a boom economy is 13%, the probability of a stable growth economy is 17%, the probability of a stagnant economy is 55%, and the probability of a recession is 15%. Calculate the variance and the standard deviation of the three investments: stock, corporate bond, and government bond. If the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you choose, considering both risk and return? Investment Forecasted Returns for Each Economy Boom Stable Growth Stagnant Recession Stock 25% 12% 7% −10% Corporate bond 9% 7% 5% 3% Government bond 8% 6% 4% 2% Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. What is the variance of the stock investment? nothing% (Round to six decimal places.) What is the standard deviation of the stock investment? (Round to two decimal places.) What is the variance of the corporate bond investment? (Round to six decimal places.) What is the standard deviation of the corporate bond investment? (Round to two decimal places.) What is the variance of the government bond investment? (Round to six decimal places.) What is the standard deviation of the government bond investment? (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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Variance and standard deviation
(expected).
Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year. The probability of a boom economy is
13%,
the probability of a stable growth economy is
17%,
the probability of a stagnant economy is
55%,
and the probability of a recession is
15%.
Calculate the variance and the standard deviation of the three investments: stock, corporate bond, and government bond. If the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you choose, considering both risk and return? |
Investment
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||||||
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Boom
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Stable
Growth
|
Stagnant
|
Recession
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|||||
|
Stock
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25%
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|
12%
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7%
|
|
−10%
|
|
|
Corporate bond
|
9%
|
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7%
|
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5%
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3%
|
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Government bond
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8%
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6%
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4%
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2%
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|
Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places.
What is the variance of the stock investment?
nothing%
(Round to six decimal places.)What is the standard deviation of the stock investment?
What is the variance of the corporate bond investment?
What is the standard deviation of the corporate bond investment?
What is the variance of the government bond investment?
What is the standard deviation of the government bond investment?
If the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you choose, considering both risk and return? (Select the best response.)
The stock investment would be the best choice because it has the highest volatility and therefore the best chance of a high return.
There is not enough information to make this decision.
The government bond would be the best choice because it has the lowest risk.
The corporate bond would be the best choice because it has the highest expected return and the lowest risk.
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