A stocks expected return has the following distribution: Outcome Probability Return Recession 25% -30% Expansion 40% 15%
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Question:
A stock’s expected return has the following distribution:
Outcome | Probability | Return |
Recession | 25% | -30% |
Expansion | 40% | 15% |
Boom | 35% | 55% |
- What is the stock’s expected return?
- What is the standard deviation of expected return?
- Interpret your result. How do you explain the relationship between the expected return and the standard deviation of expected return of this investment? [(Assume a normal probability distribution and the return is within + one standard deviation of the expected return)]
Use 2-decimal places in your calculation.
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt , Eugene F. Brigham
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