2. You are interested in buying a stock that has a price of $72. You have projec

Question

2. You are interested in buying a stock that has a price of $72. You have projected that next year there is: a 10% probability the stock will equal $10, a 20% probability the stock will equal $38, a 30% probability the stock will equal $73, a 30% probability the stock will equal $100, and a 10% probability the stock will equal $150. Answer the following (showing all work):

(a) what is the expected return on the stock if you buy today and sell next year?

(b) what is the expected standard deviation of the stock?

Explanation / Answer

Probability Return 0.1 -62 -6.2 -57.7 3329.29 332.929 0.2 -34 -6.8 -29.7 882.09 176.418 0.3 1 0.3 5.3 28.09 8.427 0.3 28 8.4 32.3 1043.29 312.987 Expected Return -4.3 5282.76 830.761 Standard Deviation 28.82 Please consider the time devoted to make this reply by rating this as 5 star. Thank u in advance. God bless u :)

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