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HB Harvard Business Publib My Questions bartlebB Chapter 7 - MBAD-503+HBLauren Stoney | Net ImMindTap - CengagXAhttps://ng.cengage.com/static/nb/ui/evo/index.html?elSBN=9781337900010&id- 5432476578snapshotld=1286803&CENGAGE MINDTAPQ Search this courseXCh 08: Assignment - Risk and Rates of ReturnమాFor example, the continuous probability distributions of rates of return on stocks for two different companies areshown on the following graph:A-ZPROBABILITY DENSITYOfficeCompany ACompany B-40-200204060RATE OF RETURN (Percent)Based on the graph's information, which of the following statements is true?O Company A has a smaller standard deviationCompany B has a smaller standard deviationX HB Harvard Business Publib My Questions bartlebB Chapter 7 - MBAD-503Lauren Stoney | Net Im+HBMindTap - CengagXAhttps://ng.cengage.com/static/nb/ui/evo/index.html?elSBN=9781337900010&id- 5432476578snapshotld=1286803&CENGAGE MINDTAPQ Search this courseXCh 08: Assignment - Risk and Rates of ReturnConsider the following case:మDavid owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep BroadcastingA-Z(BSB). Three-quarters of David's portfolio value consists of HDS's shares, and the balance consists of BSB's shares.Each stock's expected return for the next year will depend on forecasted market conditions. The expected returnsOfficefrom the stocks in different market conditions are detailed in the following table:Market Condition Probability of Occurrence Happy Dog Soap Black Sheep Broadcasting45%Strong25%63%Normal45%27%36%-36%Weak30%-45%Calculate expected returns for the individual stocks in David's portfolio as well as the expected rate of return of theentire portfolio over the three possible market conditions next yearThe expected rate of return on Happy Dog Soap's stock over the next year isThe expected rate of return on Black Sheep Broadcasting's stock over the next year isThe expected rate of return on David's portfolio over the next year isX

Question
HB Harvard Business Publi
b My Questions bartleb
B Chapter 7 - MBAD-503
+
HB
Lauren Stoney | Net Im
MindTap - CengagX
Ahttps://ng.cengage.com/static/nb/ui/evo/index.html?elSBN=9781337900010&id- 5432476578snapshotld=1286803&
CENGAGE MINDTAP
Q Search this course
X
Ch 08: Assignment - Risk and Rates of Return
మా
For example, the continuous probability distributions of rates of return on stocks for two different companies are
shown on the following graph:
A-Z
PROBABILITY DENSITY
Office
Company A
Company B
-40
-20
0
20
40
60
RATE OF RETURN (Percent)
Based on the graph's information, which of the following statements is true?
O Company A has a smaller standard deviation
Company B has a smaller standard deviation
X
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HB Harvard Business Publi b My Questions bartleb B Chapter 7 - MBAD-503 + HB Lauren Stoney | Net Im MindTap - CengagX Ahttps://ng.cengage.com/static/nb/ui/evo/index.html?elSBN=9781337900010&id- 5432476578snapshotld=1286803& CENGAGE MINDTAP Q Search this course X Ch 08: Assignment - Risk and Rates of Return మా For example, the continuous probability distributions of rates of return on stocks for two different companies are shown on the following graph: A-Z PROBABILITY DENSITY Office Company A Company B -40 -20 0 20 40 60 RATE OF RETURN (Percent) Based on the graph's information, which of the following statements is true? O Company A has a smaller standard deviation Company B has a smaller standard deviation X

fullscreen
HB Harvard Business Publi
b My Questions bartleb
B Chapter 7 - MBAD-503
Lauren Stoney | Net Im
+
HB
MindTap - CengagX
Ahttps://ng.cengage.com/static/nb/ui/evo/index.html?elSBN=9781337900010&id- 5432476578snapshotld=1286803&
CENGAGE MINDTAP
Q Search this course
X
Ch 08: Assignment - Risk and Rates of Return
Consider the following case:
మ
David owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting
A-Z
(BSB). Three-quarters of David's portfolio value consists of HDS's shares, and the balance consists of BSB's shares.
Each stock's expected return for the next year will depend on forecasted market conditions. The expected returns
Office
from the stocks in different market conditions are detailed in the following table:
Market Condition Probability of Occurrence Happy Dog Soap Black Sheep Broadcasting
45%
Strong
25%
63%
Normal
45%
27%
36%
-36%
Weak
30%
-45%
Calculate expected returns for the individual stocks in David's portfolio as well as the expected rate of return of the
entire portfolio over the three possible market conditions next year
The expected rate of return on Happy Dog Soap's stock over the next year is
The expected rate of return on Black Sheep Broadcasting's stock over the next year is
The expected rate of return on David's portfolio over the next year is
X
help_outline

Image Transcriptionclose

HB Harvard Business Publi b My Questions bartleb B Chapter 7 - MBAD-503 Lauren Stoney | Net Im + HB MindTap - CengagX Ahttps://ng.cengage.com/static/nb/ui/evo/index.html?elSBN=9781337900010&id- 5432476578snapshotld=1286803& CENGAGE MINDTAP Q Search this course X Ch 08: Assignment - Risk and Rates of Return Consider the following case: మ David owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting A-Z (BSB). Three-quarters of David's portfolio value consists of HDS's shares, and the balance consists of BSB's shares. Each stock's expected return for the next year will depend on forecasted market conditions. The expected returns Office from the stocks in different market conditions are detailed in the following table: Market Condition Probability of Occurrence Happy Dog Soap Black Sheep Broadcasting 45% Strong 25% 63% Normal 45% 27% 36% -36% Weak 30% -45% Calculate expected returns for the individual stocks in David's portfolio as well as the expected rate of return of the entire portfolio over the three possible market conditions next year The expected rate of return on Happy Dog Soap's stock over the next year is The expected rate of return on Black Sheep Broadcasting's stock over the next year is The expected rate of return on David's portfolio over the next year is X

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Step 1

First question: Please examine the graph of the probability of the rate of return.

  • Compnay B has a wider spread of rate of return in comparison to A
  • Higher the spread or variability of return , higher will be the standard deviation
  • Hence, A has smaller standard deviation.
  • Henc, the correct answer is the firt option.
Step 2

Second question:

Please see the white board.

E(R) = The expected retrun 

Pi = probability of market condition i

R...

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