Suppose that your estimates of the possible one-year returns from investing in the common stock of the AYZ Corporation were as follows:   Probability of occurrence 0.2 0.1 0.3 0.2 0.2 Possible return -10% 5% 20% 35% 50%   What are the expected return? Calculate the standard deviation?

Q: (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common…

A: Stock AStock BProbabilityReturnProbabilityReturn0.3513%0.15-6%0.3014%0.357%0.3518%0.3516%0.1520%

Q: The following table is an analyst's best guess for the likelihood of various states of the economy…

A: Economy Probability (%) Ideal 0.2 20.0 Good 0.4 15.0 Fair 0.3 8.0…

Q: You are thinking of buying a stock priced at $100 per share. Assume that the risk-free rate is about…

A: CAPM model is capital asset pricing model which is used to calculate required return. It takes into…

Q: The current risk-free rate of return, rRF, is 2 percent and the market risk premium, RPM, is 8…

A: Risk free rate = 2% Marker risk premium = 8% Beta = 1.40

Q: Suppose that you have estimated the CAPM betas for the equity shares of the following two firms:…

A: Capital Asset Pricing Model is used for determining the required rate of return or the cost of…

Q: You are thinking of buying a stock priced at $106 per share. Assume that the risk-free rate is about…

A: according to CAPM: Rstock =rf+β×rm-rfwhere,rf= risk free raterm= market return

Q: XYZ stock's returns will have the following probability distribution during the possible states of…

A: a) Expected Return = Square root of sum of (Probability * Return) b) Standard Deviation = Square…

Q: Assume that the risk-free rate is 6.5% and the market risk premium is 5%. What is the required…

A: Solution:-Capital Asset Pricing Model (CAPM) is a model which gives a formula to calculate the…

Q: Assume that you are using the Capital Asset Pricing Model (CAPM) to find the expected return for a…

A: The Capital Asset Pricing Model (CAPM) is a financial model used to estimate the expected return on…

Q: For an investment in a stock, the probability of the return being -10.0% is 0.3, 10.0% is 0.4, and…

A: Information Probability Return 0.3 -10% 0.4 10% 0.3 30%

Q: 5. Given the following expectations for the next year, what is the expected return, standard…

A: To determine the Expected Return, Standard Deviation and Beta of Stock A from the data. Return on…

Q: Assume that the risk-free rate is 7.5% and the market risk premium is 8%. What is the required…

A: The required rate of return can be ascertained by using the Capital Asset Pricing Model (CAPM). The…

Q: (Expected rate of return using CAPM) a. Compute the expected rate of return for Acer common stock,…

A: CAPM is a financial model used to determine the expected rate of return on investment, particularly…

Q: The expected market return is E(RM)is estimated to be 12% per annum, while the risk-free return (rf)…

A: This question can be answered with the help of Capital Asset Pricing Model(CAPM). Ke=Rf+β(K m -Rf)…

Q: Q21. Suppose your expectations regarding the stock price are as follows: Time Return 1 0.10 2 -0.15…

A:

Q: (CAPM and expected returns) a. Given the following holding-period returns. , compute the average…

A: The capital asset pricing model represents a mode of finance that computes the expected return of an…

Q: Expected rate of return and​ risk) ​ Syntex, Inc. is considering an investment in one of two common…

A: Expected return is sum of weighted possible returns of a stock where weights are probability…

Q: Using CAPM to determine the expected rate of return for risky assets, consider the following example…

A: The objective of the question is to calculate the expected rate of return for five different stocks…

Q: Consider the following scenario analysis:   Scenario                   Probability…

A: Expected return refers to the investor’s predicted amount of profit and loss on an investment.…

Q: You have estimated the following probability distributions of expected future returns for Stocks X…

A: Expected return of a stock refers to the amount of profit or loss that an investor can incur on his…

Q: - Suppose your expectations regarding the stock price are as follows: Selling price = 100 T-bills =…

A: Expected rate of return is the profit or loss on the investor that is assumed to be anticipated by…

Q: Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal…

A: State of the marketProbability (P)Ending priceHPR including dividends (R(s))Boom0.26$14055%Normal…

Q: Required: Investors expect the market rate of return this year to be 19.00%. The expected rate of…

A: Market return19%Beta of stock1.2Expected return22.80%New Expected return17.60%Using the capital…

Q: Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal…

A: The mean of the returns refers to the average profits that the investment provides. It is used to…

Q: (CAPM and expected returns) a. Given the following holding-period returns, compute the average…

A: CAPM: Capital asset pricing modelThe Capital Asset Pricing Model (CAPM) is a mathematical model that…

Q: Boom 0.20 What's the standard deviation of the rate of return?

A: Standard deviation is a measure to calculate overall risk by measuring deviations from means returns…

Q: Suppose you have predicted the following returns for stock C in three possible states of nature.…

A: The expected rate of return is the weighted return that an investor receives based on the various…

Q: Assume that the risk-free and rate is 5.50% and the market risk premium is 7.75%. What is the…

A: Market risk premium refers to the difference between the expected return for the overall stock…

Q: You are thinking of buying a stock priced at $109.31 per share. Assume that the risk-free rate is…

A: Current price = $109.31 per shareRisk free rate = 4.03% or 0.0403Market risk premium = 6.48% or…

Q: You live in a world where assets are priced by the CAPM. The following information is given to you…

A: The expected payoff from the stock X=£105.00 Expected return of stock X = 18% Risk-free rate =5%…

Q: Assume that the risk-free rate is 7.5% and the market risk premium is 3%. What is the required…

A: Risk free rate = 7.5%  Market risk premium = 3% Beta of overall market = 1    As per CAPM, the…

Q: Assume that the risk-free rate of return is 4% and the market risk premium (ie, Rm - Rp) is 8%. If…

A: Financial statements are statements which states the business activities performed by the company .…

Q: 1. Consider the following information State of Economy Probability of State of Economy Rate of…

A: State Of EconomyProbabilityStock SStock TBoom0.222%18%Normal0.815%14%We have to calculate the…

Q: Assume that you are given the following historical returns for the Market and Security J. Also…

A:

Q: Assume that the risk-free rate is 6.5% and the market risk premium is 6%. What is the required…

A: Given Risk free Rate = 6.5% Market Risk Premium = 6% Beta =1.80

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.