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
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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