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The following information is given:

ECONOMY PROBABILITY STOCK A STOCK B
Recession 0.2 0.02 -0.21
Normal 0.6 0.09 0.13
Boom 0.2 0.11 0.32

I found the expected rate of return for stock A and B, which is 8% and 10% respectively. I need to find the standard deviation of both A and B as well. I tried calculating using excel using both the given rates of return for both A and B, as well as the STDEVA of the combined rates of return x their given probabilities in each economic condition. Neither worked. What am I doing wrong? Can you show me the long way to get standard deviation of both A and B?

 

Basic Finance, Finance

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