a) The table below shows the performance of two shares A and B under four different economic conditions and their associated probabilities of occurrence: Economic Probabilities Rate of return Rate of return Probabilities Condition % % A B A B Growth 18.50 16.50 0.25 0.45 Expansion 12.75 14.00 0.25 0.20 Stagnation 1.25 1.80 0.25 0.20 Recession -6.00 -4.50 0.25 0.15 Calculate: 1) The expected rate of return for shares A and B. ii) The standard deviation of the returns for shares A and B. 111) The coefficient of variation of returns for shares A and B. Advise an investor on the preferred share.
a) The table below shows the performance of two shares A and B under four different economic conditions and their associated probabilities of occurrence: Economic Probabilities Rate of return Rate of return Probabilities Condition % % A B A B Growth 18.50 16.50 0.25 0.45 Expansion 12.75 14.00 0.25 0.20 Stagnation 1.25 1.80 0.25 0.20 Recession -6.00 -4.50 0.25 0.15 Calculate: 1) The expected rate of return for shares A and B. ii) The standard deviation of the returns for shares A and B. 111) The coefficient of variation of returns for shares A and B. Advise an investor on the preferred share.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
None
Transcribed Image Text:a) The table below shows the performance of two shares A and B under four
different economic conditions and their associated probabilities of occurrence:
Economic
Probabilities
Rate of return
Rate of return
Probabilities
Condition
%
%
A
B
A
B
Growth
18.50
16.50
0.25
0.45
Expansion
12.75
14.00
0.25
0.20
Stagnation
1.25
1.80
0.25
0.20
Recession
-6.00
-4.50
0.25
0.15
Calculate:
1) The expected rate of return for shares A and B.
ii) The standard deviation of the returns for shares A and B.
111)
The coefficient of variation of returns for shares A and B.
Advise an investor on the preferred share.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education