Hull Consultants, a famou

Hull Consultants, a famou

Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year. The probability of a boom economy is 13%, the probability of a stable growth economy is 19%, the probability of a stagnant economy is 51%, and the probability of a recession is 17%. Calculate the variance and the standard deviation of the three investments: Stock, corporate bond and goverment bond. If the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you chose? returns on the following individual investments for the coming year. Investment Forecasted Returns for Boom Economy Forecasted Returns for Stable Growth Economy Forecasted Returns for Stagnant Economy Forecasted Returns for Recession Economy Stock 23% 10% 7% -11% Corporate bond 10% 7% 5% 3% Government bond 9% 6% 4% 2%

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