Question

The rate of return on the common stock of a company is expected to be 14.25%...

The rate of return on the common stock of a company is expected to be 14.25% in a boom economy, 9.25% in a normal economy, and only 3.75% in a recessionary economy. The probabilities of these economic states are 33.0% for a boom, 44.0% for a normal economy, and 23.0% for a recession. What is the variance of the returns on the common stock of the company?

Question 11 options:

0.001393

0.001431

0.001468

0.001506

0.001544

Homework Answers

Answer #1

Expected return=Respective return*Respective probability

=(0.33*14.25)+(0.44*9.25)+(0.23*3.75)=9.635%

probability Return probability*(Return-Expected Return)^2
0.33 14.25 0.33*(14.25-9.635)^2=7.02841425
0.44 9.25 0.44*(9.25-9.635)^2=0.065219
0.23 3.75 0.23*(3.75-9.635)^2=7.96564175
Total=15.059275%

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

=(15.059275)^(1/2)

=3.88%(Approx)

Variance=Standard deviation^2

=0.001506(Approx)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The rate of return on the common stock of a company is expected to be 11.75%...
The rate of return on the common stock of a company is expected to be 11.75% in a boom economy, 6.75% in a normal economy, and only 1.25% in a recessionary economy. The probabilities of these economic states are 23.0% for a boom, 64.0% for a normal economy, and 13.0% for a recession. What is the variance of the returns on the common stock of the company? 0.000878 0.000902 0.000926 0.000949 0.000973
The rate of return on the common stock of a company is expected to be 11.25%...
The rate of return on the common stock of a company is expected to be 11.25% in a boom economy, 6.25% in a normal economy, and only 0.75% in a recessionary economy. The probabilities of these economic states are 21.0% for a boom, 68.0% for a normal economy, and 11.0% for a recession. What is the variance of the returns on the common stock of the company? Question 4 options: 0.000754 0.000775 0.000796 0.000817 0.000838
The rate of return on the common stock of a company is expected to be 15.50%...
The rate of return on the common stock of a company is expected to be 15.50% in a boom economy, 10.50% in a normal economy, and only 5.00% in a recessionary economy. The probabilities of these economic states are 38.0% for a boom, 34.0% for a normal economy, and 28.0% for a recession. What is the variance of the returns on the common stock of the company?
The rate of return on the common stock of a company is expected to be 13.25%...
The rate of return on the common stock of a company is expected to be 13.25% in a boom economy, 8.25% in a normal economy, and only 2.75% in a recessionary economy. The probabilities of these economic states are 29.0% for a boom, 52.0% for a normal economy, and 19.0% for a recession. What is the variance of the returns on the common stock of the company?
The rate of return on the common stock of a company is expected to be 12.75%...
The rate of return on the common stock of a company is expected to be 12.75% in a boom economy, 7.75% in a normal economy, and only 2.25% in a recessionary economy. The probabilities of these economic states are 27.0% for a boom, 56.0% for a normal economy, and 17.0% for a recession. What is the variance of the returns on the common stock of the company?
q 26 The rate of return on the common stock of a company is expected to...
q 26 The rate of return on the common stock of a company is expected to be 13.75% in a boom economy, 8.75% in a normal economy, and only 3.25% in a recessionary economy. The probabilities of these economic states are 31.0% for a boom, 48.0% for a normal economy, and 21.0% for a recession. What is the variance of the returns on the common stock of the company?
The rate of return on the common stock of a company is expected to be 13.75%...
The rate of return on the common stock of a company is expected to be 13.75% in a boom economy, 8.75% in a normal economy, and only 3.25% in a recessionary economy. The probabilities of these economic states are 31.0% for a boom, 48.0% for a normal economy, and 21.0% for a recession. What is the variance of the returns on the common stock of the company? 0.001255 0.001290 0.001325 0.001360 0.001395
The rate of return on the common stock of Flowers by Flo is expected to be...
The rate of return on the common stock of Flowers by Flo is expected to be 14% in a boom economy, 8% in a normal economy, and only 2% in a recessionary economy. The probabilities of these economic states are 20% for a boom, 70% for a normal economy, and 10% for a recession. What is the variance of the returns on the common stock of Flowers by Flo? Multiple Choice .001280 .001044 .001863 .002001 .002471
The rate of return on the common stock of Lancaster Woolens is expected to be 18...
The rate of return on the common stock of Lancaster Woolens is expected to be 18 percent in a boom economy, 8 percent in a normal economy, and only 2 percent in a recessionary economy. The probabilities of these economic states are 12 percent for a boom and 10 percent for a recession. What is the expected risk on this common stock? [3 points] a. 0.01150 b. 0.01306 c. 0.12345 d. 0.001389 e. 0.001421
Question 1 a. Calculate the expected return on stock of Gamma Inc.: State of the economy...
Question 1 a. Calculate the expected return on stock of Gamma Inc.: State of the economy Probability of the states Percentage returns Economic recession 28% -7.4% Steady economic growth     35% 2.2% Boom Please calculate it 14.6% Round the answers to two decimal places in percentage form. b. Calculate the expected standard deviation on stock: State of the economy Probability of the states Percentage returns Economic recession              18% 2% Steady economic growth 22% 8% Boom Please calculate it 14%
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT