(Expected rate of return and risk) Syndex, Inc is considering an investment in one of two common stocks. Given the information that follows, which investment is better based on the risk (as measured by the standard deviation) and retum?
(Expected rate of return and risk) Syndex, Inc is considering an investment in one of two common stocks. Given the information that follows, which investment is better based on the risk (as measured by the standard deviation) and retum?
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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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.
Question
Transcribed Image Text:(Expected rate of return and risk) Syntex, Inc is considering an investment in one of two common stocks Given the information that follows, which investment is better, based on
the risk (as measured by the standard deviation) and retum?
Common Stock A
Probability
0.25
0,50
0:25
Common Stock B
Return
10%
17%
10%
Probability
0.10
0:40
0:40
010
(Click on the soon in order to copy its contents into a spreadsheet)
Return
-6%
8%
15%
20%
COD
a. Given the information in the table the expected rate of return for stock A is 15.5% (Round to two decimal places)
The standard deviation of stock A is 4 36% (Round to two decimal places)
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