The rate of return on the common stock of Flowers by Flo is expected to be 14 percent in a boom economy, 8 percent in a normal economy, and only 2 percent in a recessionary economy. The probabilities of these economic states are 10 percent for a boom, 50 percent for a normal economy, and 40 percent for a recession. What is the standard deviation of returns for this investment? Round to the nearset hundredth percent. Answer in the percent format. Do not include % sign in your answer (Le. If your answer is 4.33 %, type 4.33 without a % sign at the end.)

The rate of return on the common stock of Flowers by Flo is expected to be 14 percent in a boom economy, 8 percent in a normal economy, and only 2 percent in a recessionary economy. The probabilities of these economic states are 10 percent for a boom, 50 percent for a normal economy, and 40 percent for a recession. What is the standard deviation of returns for this investment? Round to the nearset hundredth percent. Answer in the percent format. Do not include % sign in your answer (Le. If your answer is 4.33 %, type 4.33 without a % sign at the end.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 6P

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Concept explainers

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

The rate of return on the common stock of Flowers by Flo is expected to be 14 percent in a boom economy, 8 percent in a normal
economy, and only 2 percent in a recessionary economy. The probabilities of these economic states are 10 percent for a boom, 50 percent for
a normal economy, and 40 percent for a recession. What is the standard deviation of returns for this investment? Round to the nearset
hundredth percent. Answer in the percent format. Do not include % sign in your answer (l.e. If your answer is 4.33%, type 4.33 without a %
sign at the end.)

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