Calculate the expected return for the two stocks. ( Do not round intermediate ca

Question

Calculate the expected return for the two stocks. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Calculate the standard deviation for the two stocks. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Calculate the expected return for the two stocks. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Solution:

Expected Return - ( Probabilty of 1st state * Expected return of that state ) + ( Probabilty of 2nd state * Expected return of that state ) + ...........

1. Expected Return of Stock A = ( .23 * .025 )+ ( .58 * .105) + ( 19 * .270 ) = 11.795 % (Converted into percents )

2. Expected Return of Stock B = ( .23 * -.38 )+ ( .58 * .28 + ( 19 * .51 ) = 17.19 %

Standard Deviation -

A = Square root of (.23( .025 - .11795 ) 2 + .58 ( .105 - .11795 ) 2+ .19 ( .270 - .11795)2 ) = 8.05 %

B =Square root of ( .23 ( -.38 - .1719 )2    + .58 ( .28 - .1719 )2 + .19 ( .51 - .1719 )2) = 31.39 %

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.