Consider the following probability distribution for stocks C and D: $$\begin{array} { c c c c }
\text { State } & \text { Probability } & \text { Return on Stock C } & \text { Return on Stock D } \
1 & 0.30 & 7 \% & - 9 \% \
2 & 0.50 & 11 \% & 14 \% \
3 & 0.20 & - 16 \% & 26 \% \
\hline
\end{array}$$ The standard deviations of stocks C and D are _____ and _____, respectively.
A) 7.62%; 11.24%
B) 11.24%; 7.62%
C) 10.35%; 12.93%
D) 12.93%; 10.35%

Question

Consider the following probability distribution for stocks C and D: $$\begin{array} { c c c c } 
\text { State } & \text { Probability } & \text { Return on Stock C } & \text { Return on Stock D } \
1 & 0.30 & 7 \% & - 9 \% \
2 & 0.50 & 11 \% & 14 \% \
3 & 0.20 & - 16 \% & 26 \% \
\hline
\end{array}$$ The standard deviations of stocks C and D are _____ and _____, respectively.
A) 7.62%; 11.24%
B) 11.24%; 7.62%
C) 10.35%; 12.93%
D) 12.93%; 10.35%

Quizplus · Accepted Answer

The standard deviation is calculated using the formula for variance: $\sigma^2 = \sum (p_i \times (r_i - \bar{r})^2)$, where $p_i$ is the probability, $r_i$ is the return, and $\bar{r}$ is the expected return. Calculating for both stocks, Stock C has a standard deviation of 10.35% and Stock D has a standard deviation of 12.93%.

Consider the Following Probability Distribution for Stocks C and D