CORPORATE FINANCE
CORPORATE FINANCE
12th Edition
ISBN: 9781307702804
Author: Ross
Publisher: MCG/CREATE
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Chapter 11, Problem 25QAP
Summary Introduction

Adequate information:

Probability in Bear PBe = 0.3333

Probability in Normal PNo = 0.3333

Probability in Bull PBu = 0.3333

Expected return for Stock A in Bear RABe = 0.099

Expected return for Stock A in Normal RANo = 0.113

Expected return for Stock A in Bull RABu = 0.059

Expected return for Stock B in Bear RBBe = -0.073

Expected return for Stock B in Normal RBNo = 0.128

Expected return for Stock B in Bull RBBu = 0.293

To compute: Expected return, standard deviation, covariance, and correlation

Introduction: The expected return of the stocks refers to the return expected on the stocks. Standard deviation measures the deviation between the actual prices and the average price. Covariance reflects the relationship of two random variables and projects the impact of one variable whenever the other one changes. Correlation refers to the degree of fluctuation of two variables in relation to one another.

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Chapter 11 Solutions

CORPORATE FINANCE

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