4. Problem 2-05 (Expected Return: Discrete Distribution)REExpected Return: Discrete DistributionA stock's return has the following distribution:Demand for theCompany's ProductsWeakBelow averageAverageAbove averageStrongeBook%Probability of ThisDemand Occurring%0.10.20.40.20.11.0Calculate the stock's expected return. Round your answer to two decimal places.Rate of Return if ThisDemand Occurs (%)-45%-7104065Calculate the standard deviation. Do not round intermediate calculations. Round your answer to two decimal places.

The expected return is the average expected outcome of investing in a company over a given period of…

Answered: Calculate the stock's expected return.…

Calculate the stock's expected return. Round your answer to two decimal places. % Calculate the standard deviation. Do not round intermediate calculations. Round your answer to two decimal places. %

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 17PROB

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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

4. Problem 2-05 (Expected Return: Discrete Distribution)
RE
Expected Return: Discrete Distribution
A stock's return has the following distribution:
Demand for the
Company's Products
Weak
Below average
Average
Above average
Strong
eBook
%
Probability of This
Demand Occurring
%
0.1
0.2
0.4
0.2
0.1
1.0
Calculate the stock's expected return. Round your answer to two decimal places.
Rate of Return if This
Demand Occurs (%)
-45%
-7
10
40
65
Calculate the standard deviation. Do not round intermediate calculations. Round your answer to two decimal places.

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