Probabilities and possible returns of share X have been projected as below based on different statutes of an economy. Required: a) Calculate the expected return if you buy this share. b) Calculate the variance and standard deviation.
Probabilities and possible returns of share X have been projected as below based on different statutes of an economy. Required: a) Calculate the expected return if you buy this share. b) Calculate the variance and standard deviation.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Probabilities and possible returns of share X have been projected as below based on different statutes of an economy.
Required:
a) Calculate the expected return if you buy this share.
b) Calculate the variance and standard deviation.
Transcribed Image Text:Outcome
Probability Return
30%
30%
Recession
-13%
Expansion
8%
Boom
40%
20%
Expert Solution
Step 1
a) Calculation of expected return
| Probability | Return | Expected return |
| X | Y | Z=X*Y |
| 30% | -13% | -3.90% |
| 30% | 8% | 2.40% |
| 40% | 20% | 8.00% |
| Expected return | 6.50% | |
Hence
Expected return = 6.50%
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