The following data represent the probability distribution of the holding period
ID: 2813763 • Letter: T
Question
The following data represent the probability distribution of the holding period returns for an investment in Lazy Rapids Kayaks (LARK) stock.
a. What is the expected return on LARK? (Round your answer to 2 decimal places.)
Expected return %
b. What is the standard deviation of the returns on LARK? (Round your answer to 2 decimal places.)
Standard deviation %
State of the Economy Scenario #(s) Probability, p(s) HPR Boom 1 0.340 33.20% Normal growth 2 0.420 8.40% Recession 3 0.24 -19.20%Explanation / Answer
a.Expected return=Respective return*Respective probability
=(0.34*33.2)+(0.42*8.4)+(0.24*-19.2)
=10.21%(Approx).
b.
Standard deviation=[Total probability*(Return-Expected return)^2/Total probability]^(1/2)
=(388.6671361)^(1/2)
which is equal to
=19.71%(Approx).
probability Return probability*(Return-Expected return)^2 0.34 33.2 0.34*(33.2-10.208)^2=179.7349018 0.42 8.4 0.42*(8.4-10.208)^2=1.37292288 0.24 -19.2 0.24*(-19.2-10.208)^2=207.5593114 Total=388.6671361%Related Questions
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