Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Expected Return, Variance, Std. Deviation and Cofficient of Variation:
Magee Inc.'s manager believes that economic conditions during the next year will be strong, normal, or weak, and she thinks that the firm's returns will have the probability distribution shown below. What's the standard deviation of the estimated returns?
Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
State of the Economy |
Probability of State Occurring
|
Stock's Expected Return
|
Boom |
20%
|
22.20%
|
Normal |
50%
|
12.90%
|
Recession |
30%
|
–11.40%
|
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Senior management of Nancy's Nooks (NN) has determined there is a 20 percent chance EPS will be $7.50 next year, there is a 60 percent chance EPS will be $3.00, and there is a 20 percent chance EPS will be -$3.70. Calculate the expected value, standard deviation, and coefficient of variation for NN's forecasted EPS. Do not round intermediate calculations. Round your answers for the expected value and standard deviation to the nearest cent and for the coefficient of variation to two decimal places. Expected value: $ Standard deviation: $ Coefficient of variation:arrow_forwardSuppose that stock market returns are normally distributed with a mean of 7% and a standard deviation of 20%. There should be about a 16% chance of getting a return less than _______%. Write your answer as a whole number: eg, -15% = -15.arrow_forwardConsider the following information: State of Economy Boom Bust Probability of State of Economy a. Expected return b. Variance .60 .40 Rate of Return if State Occurs % Stock A Stock B .23 .08 .15 .18 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the variance of a portfolio invested 24 percent each in A and B and 52 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) Stock C .42 -.09arrow_forward
- If the economy booms, RTF, Incorporated, stock is expected to return 10 percent. If the economy goes into a recessionary period, then RTF is expected to only return 3 percent. The probability of a boom is 65 percent while the probability of a recession is 35 percent. What is the variance of the returns on RTF, Incorporated, stock?arrow_forwardplease show steps in excelarrow_forwardNote:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- A manager believes his firm will earn a return of 12.50 percent next year. His firm has a beta of 1.40, the expected return on the market is 10.50 percent, and the risk-free rate is 3.50 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required return % Determine whether the manager is saying the firm is undervalued or overvalued. O overvalued O undervaluedarrow_forwardIt's best to add columns for deviation, standard deviation, and squared deviation multiplied by probability.arrow_forwardHow can you work this out in Excel? Suppose that we have an investment with an annual return of 10% and an annual standard deviation of 25%. Over a one-year period, what range of returns can we expect with approximately 95% confidence? 1.-15.36% to 55.36% 2.5% to 45% 3.-23.45% to 56.78% 4. -40% to 60%arrow_forward
- ces A manager believes his firm will earn a return of 23.80 percent next year. His firm has a beta of 1.69, the expected return on the market is 16.30 percent, and the risk-free rate is 6.30 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required return Determine whether the manager is saying the firm is undervalued or overvalued.. undervalued % overvaluedarrow_forwardIf Company A has a PE ratio of 20 and Company B has a PE ratio of 80, investors expect Company A to grow more in the future than Company B. True Falsearrow_forwardThe last four years of returns for a stock are shown here: a. What is the average annual return? b. What is the variance of the stock's returns? c. What is the standard deviation of the stock's returns? Note: Notice that the average return and standard deviation must be entered in percentage format. The variance must be entered in decimal format. a. What is the average annual return? The average return is ☐ %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year Return 1 -4.12% 2 +27.56% 3 + 12.24% +4.35% Print Done - Xarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education