Question

Expected Returns: Discrete Distribution

The market and Stock J have the following probability distributions:

Probability |
rM |
rJ |

0.3 | 15% | 22% |

0.4 | 9 | 4 |

0.3 | 19 | 13 |

Calculate the expected rate of return for the market. Round your
answer to two decimal places.

%

Calculate the expected rate of return for Stock J. Round your
answer to two decimal places.

%

Calculate the standard deviation for the market. Do not round
intermediate calculations. Round your answer to two decimal
places.

%

Calculate the standard deviation for Stock J. Do not round
intermediate calculations. Round your answer to two decimal
places.

%

Answer #1

**For the market:**

**Expected return**=Respective return*Respective
probability

=(0.3*15)+(0.4*9)+(0.3*19)=**13.8%**

probability | Return | probability*(Return-Expected return)^2 |

0.3 | 15 | 0.3*(15-13.8)^2=0.432 |

0.4 | 9 | 0.4*(9-13.8)^2=9.216 |

0.3 | 19 | 0.3*(19-13.8)^2=8.112 |

Total=17.76% |

**Standard deviation=[**Total
probability*(Return-Expected return)^2/Total Probability]^(1/2)

which is equal to

=**4.21%(Approx)**

**For the Stock J:**

**Expected return**=Respective return*Respective
probability

=(0.3*22)+(0.4*4)+(0.3*13)=**12.1%**

probability | Return | probability*(Return-Expected return)^2 |

0.3 | 22 | 0.3*(22-12.1)^2=29.403 |

0.4 | 4 | 0.4*(4-12.1)^2=26.244 |

0.3 | 13 | 0.3*(13-12.1)^2=0.243 |

Total=55.89% |

**Standard deviation=[**Total
probability*(Return-Expected return)^2/Total Probability]^(1/2)

which is equal to

=**7.48%(Approx)**

Problem 6-06
Expected Returns: Discrete Distribution
The market and Stock J have the following probability
distributions:
Probability
rM
rJ
0.3
15%
21%
0.4
8
3
0.3
18
13
Calculate the expected rate of return for the market. Round your
answer to two decimal places.
%
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answer to two decimal places.
%
Calculate the standard deviation for the market. Do not round
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Probability
rM
rJ
0.3
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0.4
8
3
0.3
18
12
Calculate the expected rate of return for the market. Round your
answer to two decimal places.
%
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intermediate calculations. Round your answer to two decimal
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rJ
0.3
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9
7
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19
12
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your answer to two decimal places.
%
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Problem 6-6
Expected Return: Discrete Distribution
The market and Stock J have the following probability
distributions:
Probability
rM
rJ
0.3
16%
18%
0.4
9
3
0.3
17
12
Calculate the expected rate of return for the market. Round
your answer to two decimal places.
%
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answer to two decimal places.
%
Calculate the standard deviation for the market. Round your
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Calculate the standard...

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A
B
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(7%)
(28%)
0.3
2
0
0.3
12
18
0.2
20
25
0.1
39
37
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Round your answer to two decimal places.
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Stocks A and B have the following probability distributions of
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0.2
6
0
0.4
16
19
0.2
21
25
0.1
34
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0
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11
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