What is the expected value of unit sales for the new product? (Do not round intermediate calculations and round your answer to the nearest whole unit.) b. What is the standard deviation of unit sales?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Myers Business Systems is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are given next:
| Possible Market Reaction | Sales in Units | Probabilities | ||||
| Low response | 30 | 0.10 | ||||
| Moderate response | 40 | 0.10 | ||||
| High response | 55 | 0.20 | ||||
| Very high response | 65 | 0.60 | ||||
a. What is the expected value of unit sales for the new product? (Do not round intermediate calculations and round your answer to the nearest whole unit.)
b. What is the standard deviation of unit sales? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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