The returns on the common stock of New Image Products are quite cyclical.

QUESTION

The returns on the common stock of New Image Products are quite cyclical. In a boom economy, the stock is expected to return 32 percent in comparison to 14 percent in a normal economy and a negative 28 percent in a recessionary period. The probability of a recession is 10 percent while the probability of a boom is 25 percent. What is the standard deviation of the returns on this stock?A. 16.04 percentB. 21.56 percentC. 25.83 percentD. 18.1 percentE. 14.2 percent
A: E(r) = .25(32) + .65(14)+.1(-28) = .143 Std Dev =

3)2+.65(.14-.143)2+.1(-.28-.143)2]1/2=16.04%

ANSWER:

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