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

Q: You are interested in buying a stock that has a price of $72. You have projected

Solution: (a.) (b.) Price Probability Returns = (Price next year - Purchase Price)/purchase price Return * Probabilty 1 10% -98.61% -9.86% 44 20% -38.89% -7.78% 83 30% 15.28% 4.58% 95 30% 31.94% 9.58% 150 10% 108.33% 10.83% Expected Retun of Stock = sum of probabilty * return 7.36%

ID: 2777297 • Letter: Y

Question

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 $1, a 20% probability the stock will equal $44, a 30% probability the stock will equal $83, a 30% probability the stock will equal $95, 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

Solution:

(a.)

(b.)

Price Probability Returns = (Price next year - Purchase Price)/purchase price Return * Probabilty 1 10% -98.61% -9.86% 44 20% -38.89% -7.78% 83 30% 15.28% 4.58% 95 30% 31.94% 9.58% 150 10% 108.33% 10.83% Expected Retun of Stock = sum of probabilty * return 7.36%

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

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

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