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Chrome File Edit View History Bookmarks People Window Help xy MindTap-Cengage Learning × CSecure /https//ng.cengage.com/static/nb/ui/index.html?nbld-8245998nbNodeld-3175170358elS8N-978130563597588 pps Blackboard Learn M GmailApple CloudCengage FIN 331 FacebotYahool Nw Po MINDTAP pter 8 Homework, part 1 -Graded e Tomorrow at 9 AM COT o Click hene to read the eBook: Stand-Alone Risk EXPECTED RETURN A stock's returns have the following distribution Demand for the Probability of This Rate of Return If O Company's Products Demand Occurring This Demand Occurs O Weak (44%) 0.1 0.3 0.3 0.2 0.1 Below average Above average 37 Strong 45 1.0 Casculate the stock's expected return. Round your answer to two decimal places. b. Calculate the stock's standard deviation. Do not round intermediate calculations. Round your answer to two decimal places. c Calculate the stock's coefficient of variation. Round your answer to two decimal places

Explanation / Answer

1)

Expected return = 0.1 * ( - 0.44) + 0.3 * ( -0.06) + 0.3 * 0.11 + 0.2 * 0.37 + 0.1 * 0.45

Expected return = -0.044 - 0.018 + 0.033 + 0.074 + 0.045

Expected return = 0.09 or 9%

Variance = 0.1[(-0.44 - 0.09)2] + 0.3 [(-0.06 - 0.09)2] + 0.3[(0.11 - 0.09)2] + 0.2[(0.37 - 0.09)2] + 0.1[(0.45 - 0.09)2]

Variance = 0.02809 + 0.00675 + 0.00012 + 0.01568 + 0.01296

Variance = 0.0636

Standard devaition is square root of variance

Standard deviation is 0.2522 or 25.22%

Coeficcient of variation = (0.2522 / 0.09) * 100

Coeficcient of variation = 2.8

2)

Portfolio beta = ( 40,000 / 115,000) * 0.5 + ( 75,000 / 115,000) * 2.4

Portfolio beta = 0.1739 + 1.5652

Portfolio beta = 1.74

3)

Required rate of return using CAPM model = 0.05 + 1 ( 0.13 - 0.05)

Required rate of return = 0.13 or 13%

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