You are considering investing in JR stock. Your stockbroker has informed you that the expected return of JR is 16%. Further information reveals that the standard deviation of JR is 8%. Based on the information provided, you believe a) there is a 2.5% chance that the actual return of LBJ next year will be negative. b) there is a 2.5% chance that the actual return of LBJ next year will be positive. c) there is a 2.5% chance that the actual returns will exceed 32%. d) there is a 32% chance that the actual return of LBJ next year will be outside 0% and 32%. e) (a) and (d) are true. pls show procedure, thanks
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.
You are considering investing in JR stock. Your stockbroker has informed you that the expected return of JR is 16%. Further information reveals that the standard deviation of JR is 8%. Based on the information provided, you believe
a) there is a 2.5% chance that the actual return of LBJ next year will be negative.
b) there is a 2.5% chance that the actual return of LBJ next year will be positive.
c) there is a 2.5% chance that the actual returns will exceed 32%.
d) there is a 32% chance that the actual return of LBJ next year will be outside 0% and 32%.
e) (a) and (d) are true.
pls show procedure, thanks
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