Kurt’s Adventures, 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 probabilityof 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 deviationof the returns on Kurt’s Adventures, Inc. stock?
This solution provides a step-by-step calculation of standard deviation and expected rate of return.