Math Problem Statement

A stock will have a loss of 11.4 percent in a bad economy, a return of 11.2 percent in a normal economy, and a return of 25.1 percent in a hot economy. There is 30 percent probability of a bad economy, 33 percent probability of a normal economy, and 37 percent probability of a hot economy. What is the variance of the stock's returns?

Multiple Choice

.04441

.14901

.01665

.02220

.03331

Solution

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Math Problem Analysis

Mathematical Concepts

Probability
Expected Value
Variance

Formulas

Expected Return: μ = Σ(Pi × Ri)
Variance: σ² = Σ(Pi × (Ri - μ)²)

Theorems

Law of Total Probability

Suitable Grade Level

Grades 10-12