Consider the following information: Probability of Rate of Return if State Occurs State Economy of Economy Stock A Stock B Recession .22 .020 -.27 Normal .57 .100 .17 Boom .21 .160 .40 a. Calculate the expected return for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B % % % % < Prev 3 of 7 Next >>
Consider the following information: Probability of Rate of Return if State Occurs State Economy of Economy Stock A Stock B Recession .22 .020 -.27 Normal .57 .100 .17 Boom .21 .160 .40 a. Calculate the expected return for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B % % % % < Prev 3 of 7 Next >>
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 3P
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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.
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Transcribed Image Text:Consider the following information:
Probability of Rate of Return if State Occurs
State
Economy
of Economy
Stock A
Stock B
Recession
.22
.020
-.27
Normal
.57
.100
.17
Boom
.21
.160
.40
a. Calculate the expected return for the two stocks. (Do not round intermediate
calculations and enter your answers as a percent rounded to 2 decimal places, e.g.,
32.16.)
b. Calculate the standard deviation for the two stocks. (Do not round intermediate
calculations and enter your answers as a percent rounded to 2 decimal places, e.g.,
32.16.)
a.
Expected return of A
Expected return of B
b.
Standard deviation of A
Standard deviation of B
%
%
%
%
< Prev
3 of 7
Next >>
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