The expected return in 2021 for stock of Thanks-For-The-Subsidies (TFS), an electric car manufacturer, is 8%. However, the CEO of TFS is addicted to Twitter, and his misjudged tweets cause a sudden decline of 17% in TFS's stock price. The tweets are the only unexpected news for TFS in 2021. What will be TFS's actual return in 2021?
The expected return in 2021 for stock of Thanks-For-The-Subsidies (TFS), an electric car manufacturer, is 8%. However, the CEO of TFS is addicted to Twitter, and his misjudged tweets cause a sudden decline of 17% in TFS's stock price. The tweets are the only unexpected news for TFS in 2021. What will be TFS's actual return in 2021?
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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![**Problem Statement:**
The expected return in 2021 for stock of Thanks-For-The-Subsidies (TFS), an electric car manufacturer, is 8%. However, the CEO of TFS is addicted to Twitter, and his misjudged tweets cause a sudden decline of 17% in TFS's stock price. The tweets are the only unexpected news for TFS in 2021.
**Question:**
What will be TFS’s actual return in 2021?
**Solution Explanation:**
To find the actual return, consider both the expected return and the impact of unexpected events. The expected return is 8%, but a decline of 17% due to tweets is unexpected. Subtract the 17% decline from the expected 8% return:
\[ \text{Actual Return} = \text{Expected Return} - \text{Decline} = 8\% - 17\% = -9\% \]
Thus, TFS’s actual return in 2021 will be -9%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F62ef46e2-1b41-490a-9d0b-4f5756a0a089%2Fd3db4884-f60a-4b15-be89-72290c4a807c%2Fdn2xdtcx_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Problem Statement:**
The expected return in 2021 for stock of Thanks-For-The-Subsidies (TFS), an electric car manufacturer, is 8%. However, the CEO of TFS is addicted to Twitter, and his misjudged tweets cause a sudden decline of 17% in TFS's stock price. The tweets are the only unexpected news for TFS in 2021.
**Question:**
What will be TFS’s actual return in 2021?
**Solution Explanation:**
To find the actual return, consider both the expected return and the impact of unexpected events. The expected return is 8%, but a decline of 17% due to tweets is unexpected. Subtract the 17% decline from the expected 8% return:
\[ \text{Actual Return} = \text{Expected Return} - \text{Decline} = 8\% - 17\% = -9\% \]
Thus, TFS’s actual return in 2021 will be -9%.
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