Question

Calculate the expected return and risk (standard deviation) for General Foods for 2012, given the following...

Calculate the expected return and risk (standard deviation) for General Foods for 2012, given the following information: Probabilities: 0:15 0:20 0:40 0:10 0:15 Expected returns: 0:20 0:16 0:12 0:05 0:05

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Answer #1

The correct answer is :

Expected return = 12.25%

The standard deviation = 5.00 %

Notes:

Probability Expected Stock Return on Stock B Expected Return ( Probability * Expected Stock Return)
0.15 0.20 0.0300
0.20 0.16 0.0320
0.40 0.12 0.0480
0.10 0.05 0.0050
0.15 0.05 0.0075
Expected Return   0.1225
Expected Return   % 12.25
Probability Probable Return Deviation ( Probable Return- Expected Return) Deviation Squared Product ( Deviation Squared* Probability)
0.15 20.00 7.75000 60.063 9.00938
0.20 16.00 3.75000 14.063 2.81250
0.40 12.00 -0.25000 0.063 0.02500
0.10 5.00 -7.25000 52.563 5.25625
0.15 5.00 -7.25000 52.563 7.88438
Variance ( Sum of Product) 24.99
Standard Deviation (Square root of Variance) 4.99875
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