standard deviation of expected return

CFA Level I Quant
#1

Im having an issue with solving problems such as these in under 5min…has anyone any suggestion or perhaps some shortcuts on the BA II Plus to solve these?

At this point, any response is much appreciated.

Joe Mayer, CFA, projects that XYZ Company’s return on equity varies with the state of the economy in the following way:

State of Economy Probability of Occurrence Company Returns Good .20 20% Normal .50 15% Poor .30 10%

The standard deviation of XYZ’s expected return on equity is closest to:

A) 1.5%. B) 3.5%. C) 12.3%.

#2

E® = 4+7.5+3=14.5%

Std Dev^2 = 0.2(20-14.5)^2+0.5(15-14.5)^2+.3(10-14.5)^2 = 12.25

Std Dev=3.5%

I did it with this method in about a min.

#3

25 sec with the DATA and STAT functions on the TI BA II Plus Pro (those should be the same as on the ti ba II plus). I agree with cpk123 that it doesn’t hurt to do it manually though!!!

Make sure to enter the probabilities as full values (10 instead of 0.1) in order to avoid the ERROR 4 in 1-V Mode.

Here is a good tutorial on the Statistical part of the TI BA II Plus:

http://www.youtube.com/watch?v=HlWN2GePhYg&feature=related

or

http://www.youtube.com/watch?v=-U86qjBxS_k

#4

Hey,

do you mind showing us the calculation on the TI BA II Plus…?

I enter them as decimals…use the prob. as X values and the return (in decimals) as Y values but i dont seem to get the Sx …

#5

2nd Data

X01=20 Y01 (Frequency)=20

X02=15 Y02=50

X03=10 Y03=30

Now 2nd Stat- gives n=100 (sum of Y0*) and sx= 3.5

#6

Make sure to use 1-V (one variable) mode by pressing 2nd & Set once you opened the STAT function.

#7

We wont decimals ?

#8

How do you know when to enter the values as X or as Y?

#9

you know it because you want the return — not the probability.

That is your 1-V (one variable) in this method. and the probability should sum up to 100% (or 1).

#10

Thanks a lot guys u have solved a problem for me. This questions was wasting a lot of time for me .Now i dont need to worry

#11

Hey cpk, should your calculator always be set at 1-V?

#12

if it’s 2 variable stuff - then set to linear.

here results were the one variable so it is 1-V.

#13

Note: If you’re calculating the SAMPLE standard deviation with weighted probability, you can’t use the calculator. The reasoning is because you could enter 20, 50 and 30 for Y1, Y2, Y3, respectively or 200, 500, 300 for Y1, Y2, Y3, respectively. Therefore, your “n” is different.

#14

hei soi exmaple plz

#15

Hi

just a quick q the probability part should be inserted in frequency right

#16

Too bad i think 12c got to do manually. though as long as they don’t give too many variables should be alright :S