Mr. Ali owns a company. There is a 30% probability that his Company's sales will be $15 million next year, 35% probability that they will be $ 8 million, and a 35% probability that they will be $5 million. a) What are the expected sales of Ali’s Company next year? b) What is the standard deviation of Ali’s Company next year's sales?
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.
Mr. Ali owns a company. There is a 30% probability that his Company's sales will be $15 million next year, 35% probability that they will be $ 8 million, and a 35% probability that they will be $5 million.
a) What are the expected sales of Ali’s Company next year?
b) What is the standard deviation of Ali’s Company next year's sales?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
