Consider the following information: Probability of State of Economy .20 .60 .20 Economy Recession Normal Boom Rate of Return if State Occurs Stock A Stock B .035 .115 .290 a. Calculate the expected return for the two stocks. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. Calculate the standard deviation for the two stocks. a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. % % % % -.40 .30 53
Consider the following information: Probability of State of Economy .20 .60 .20 Economy Recession Normal Boom Rate of Return if State Occurs Stock A Stock B .035 .115 .290 a. Calculate the expected return for the two stocks. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. Calculate the standard deviation for the two stocks. a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. % % % % -.40 .30 53
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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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.
Question
Transcribed Image Text:Consider the following information:
Probability of
State of Economy
.20
.60
.20
Economy
Recession
Normal
Boom
Rate of Return if State Occurs
Stock A
Stock B
.035
.115
.290
a. Calculate the expected return for the two stocks.
Note: Do not round intermediate calculations and enter your
answers as a percent rounded to 2 decimal places, e.g., 32.16.
b. Calculate the standard deviation for the two stocks.
Note: Do not round intermediate calculations and enter your
answers as a percent rounded to 2 decimal places, e.g., 32.16.
a. Expected return of A
Expected return of B
b. Standard deviation of A
Standard deviation of B
do do do do
%
%
%
%
-.40
.30
.53
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