Dotbomb’s stock has the following projected rates of return (outcomes): 10%, 15%, and 30%. The probabilities of their outcomes are 15%, 50%, and 35% respectively. a. What are the expected return and standard deviation of Dotbomb’s stock? b. What is the probability that Dotbomb stock will earn a return no more than 15%? c. What is the probability that Dotbomb stock will earn a return less than 15%
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.
Dotbomb’s stock has the following projected
and 30%. The probabilities of their outcomes are 15%, 50%, and 35% respectively. a.
What are the expected return and standard deviation of Dotbomb’s stock?
b. What is the probability that Dotbomb stock will earn a return no more than 15%?
c. What is the probability that Dotbomb stock will earn a return less than 15%
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