Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 10, Problem 2P
a)
Summary Introduction
To determine: The expected return.
Introduction:
Expected return refers to a return that the investors expect on a risky investment in the future.
b)
Summary Introduction
To determine: The standard deviation of the return.
Introduction:
Standard deviation refers to the variation in the actual returns from the expected returns.
Variance refers to the average difference of squared deviations of the actual data from the mean or average.
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Use the following information to compute the standard deviation of returns:
Yearly Returns
Year
Return (%)
1
19
2
1
3
10
4
26
5
4
a.
12%
b.
10.42%
c.
0.87%
d.
108.5%
The following table..shows the one-year return distribution of Startup, Inc. Calculate:
a. The expected return.
b. The standard deviation of the return.
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
40%
Probability
Return
- 80%
20%
-65%
20%
- 40%
10%
-20%
10%
1,000%
Suppose the returns on an asset are normally distributed. The historical average annual return for the asset was 5.2 percent and the standard deviation was 10.6 percent.
a.
What is the probability that your return on this asset will be less than –9.7 percent in a given year? Use the NORMDIST function in Excel® to answer this question.
b.
What range of returns would you expect to see 95 percent of the time?
c.
What range of returns would you expect to see 99 percent of the time?
Chapter 10 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 10.1 - For an investment horizon from 1926 to 2012, which...Ch. 10.1 - For an investment horizon of just one year, which...Ch. 10.2 - Prob. 1CCCh. 10.2 - Prob. 2CCCh. 10.3 - How do we estimate the average annual return of an...Ch. 10.3 - Prob. 2CCCh. 10.4 - Prob. 1CCCh. 10.4 - Do expected returns of well-diversified large...Ch. 10.4 - Do expected returns for Individual stocks appear...Ch. 10.5 - What is the difference between common risk and...
Ch. 10.5 - Prob. 2CCCh. 10.6 - Explain why the risk premium of diversifiable risk...Ch. 10.6 - Why is the risk premium of a security determined...Ch. 10.7 - What is the market portfolio?Ch. 10.7 - Define the beta of a security.Ch. 10.8 - Prob. 1CCCh. 10.8 - Prob. 2CCCh. 10 - The figure on page informalfigure shows the...Ch. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - The last four years of returns for a stock are as...Ch. 10 - Prob. 9PCh. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - How does the relationship between the average...Ch. 10 - Consider two local banks. Bank A has 100 loans...Ch. 10 - Prob. 21PCh. 10 - Prob. 22PCh. 10 - Consider an economy with two types of firms, S and...Ch. 10 - Prob. 24PCh. 10 - Explain why the risk premium of a stock does not...Ch. 10 - Prob. 26PCh. 10 - Prob. 27PCh. 10 - What is an efficient portfolio?Ch. 10 - What does the beta of a stock measure?Ch. 10 - Prob. 31PCh. 10 - Prob. 32PCh. 10 - Prob. 33PCh. 10 - Suppose the risk-free interest rate is 4%. a. i....Ch. 10 - Prob. 35PCh. 10 - Prob. 36PCh. 10 - Suppose the market risk premium is 6.5% and the...Ch. 10 - Prob. 38P
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