Standard deviation of the returns

Question

Problem:

Kali's Ski Resort, Inc. stock is quite cyclical. In a boom economy, the stock is expected to return 30% in comparison to 12% in a normal economy and a negative 20% in a recessionary period. The probability of a recession is 15%. There is a 30% chance of a boom economy. The remainder of the time, the economy will be at normal levels. What is the standard deviation of the returns on Kali's Ski Resort, Inc. stock? Please provide all workings.

A. 10.05%

B. 12.60%

C. 15.83%

D.17.46%

C. 25.04%

Answer 1

What is the standard deviation of the returns on a stock given the following: State of Economy Probability of State of Economy Rate of Return Boom 10% 16% Normal 60% 11% Recession 30% -8%