An analyst believes that economic conditions during the next year will either be strong, normal, or weak, and she thinks that the Corrigan Company's returns will have the following probability distribution. Conditions Probability (%) Return (%) Strong 30 30 Normal 40 15 Weak 30 -10 What is Corrigan’s expected return? What is Corrigan’s standard deviation of returns?

An analyst believes that economic conditions during the next year will either be strong, normal, or weak, and she thinks that the Corrigan Company's returns will have the following probability distribution. Conditions Probability (%) Return (%) Strong 30 30 Normal 40 15 Weak 30 -10 What is Corrigan’s expected return? What is Corrigan’s standard deviation of returns?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 17P

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Investment advisors estimated the stock market returns for four market segments: computers, financial, manufacturing, and pharmaceuticals. Annual return projections vary depending on whether the general economic conditions are improving, stable, or declining. The anticipated annual return percentages for each market segment under each economic condition are as follows: Assume that an individual investor wants to select one market segment for a new investment. A forecast shows improving to declining economic conditions with the following probabilities: improving (0.2), stable (0.5), and declining (0.3). What is the preferred market segment for the investor, and what is the expected return percentage? At a later date, a revised forecast shows a potential for an improvement in economic conditions. New probabilities are as follows: improving (0.4), stable (0.4), and declining (0.2). What is the preferred market segment for the investor based on these new probabilities? What is the expected return percentage?
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