RTF stock is expected to return 11 percent in a normal economy and lose 15 percent in a recession.The probability of a recession is 33 percent and the probability of a booming economy is zero.What is the variance of the returns on RTF stock?
A)0.019093
B)0.013760
C)0.017864
D)0.014946
E)0.019394

Question

Quizplus · Accepted Answer

E(r)= (1 − 0.33)(0.11)+ 0.33(−0.15)+ 0 = 0.0242 Var = (1 − 0.33)(0.11 − 0.0242)² + 0.33(−0.15 − 0.0242)² + 0 = 0.014946

RTF Stock Is Expected to Return 11 Percent in a Normal