Expected return. A stocks returns have the following distribution; Denand for the company’s product Probability of this demand occurring Rate of return if this demand occurs Weak 0.1 (50%) Below average 0.2 (5%) Average 0.4 16 Above average 0.2 25 Strong 0.1 60 1.0 Calculate the stock’s expected return, standard deviation . and the coefficient of variation.
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.
- Expected return. A stocks returns have the following distribution;
|
Denand for the company’s product |
Probability of this demand occurring |
|
|
Weak |
0.1 |
(50%) |
|
Below average |
0.2 |
(5%) |
|
Average |
0.4 |
16 |
|
Above average |
0.2 |
25 |
|
Strong |
0.1 |
60 |
|
|
1.0 |
|
Calculate the stock’s expected return, standard deviation . and the coefficient of variation.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
