The intent of this assignment is to demonstrate that you can evaluate the riskiness of a...
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The intent of this assignment is to demonstrate that you can evaluate the riskiness of a stock using statistical analysis. An important consideration in investing is not only the expected return, but the likelihood that you would receive that return. There is a trade-off between risk and return. In order to receive a higher return, you have to bear more risk. The risk can be evaluated by calculating the standard deviation and coefficient of a variation of the stock. Instructions Use the blank table below to help you determine the standard deviation for the following stocks. • Stock A will return a rate of 6% in a recession, 8% in normal conditions and 12% during a boom. The expected return is 8%. • Stock B will return a rate of 2% in a recession, 8% in normal conditions and 14% during a boom. The expected return is 8%. Additionally, use the standard deviation to determine the Coefficient of Variation. Finally, list the Range. Rate of Scenario Return Recession Normal Boom Standard Deviation - CV- (1) Range - Deviation from Expected Expected Return Return (2) Squared Deviation Probability Probability (3)(2)-(1) (4) (3) x (3) (5) 0.25 0.5 Squared Deviation x 0.25 (4) x (5) The intent of this assignment is to demonstrate that you can evaluate the riskiness of a stock using statistical analysis. An important consideration in investing is not only the expected return, but the likelihood that you would receive that return. There is a trade-off between risk and return. In order to receive a higher return, you have to bear more risk. The risk can be evaluated by calculating the standard deviation and coefficient of a variation of the stock. Instructions Use the blank table below to help you determine the standard deviation for the following stocks. • Stock A will return a rate of 6% in a recession, 8% in normal conditions and 12% during a boom. The expected return is 8%. • Stock B will return a rate of 2% in a recession, 8% in normal conditions and 14% during a boom. The expected return is 8%. Additionally, use the standard deviation to determine the Coefficient of Variation. Finally, list the Range. Rate of Scenario Return Recession Normal Boom Standard Deviation - CV- (1) Range - Deviation from Expected Expected Return Return (2) Squared Deviation Probability Probability (3)(2)-(1) (4) (3) x (3) (5) 0.25 0.5 Squared Deviation x 0.25 (4) x (5)
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Related Book For
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
Posted Date:
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