Question

Shares of Rampage are currently priced at $50.00 per share. The following table indicates what could happen with the Rampage stock price and dividend per share over the next year. What is the expected standard deviation of Rampage stock’s returns? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Outcome |
Probability of outcome |
Price of Rampage stock in 1 year |
Dividend paid by Rampage in 1 year |

Good |
.60 |
$81.27 |
$3.73 |

Bad |
.40 |
$28.97 |
$1.03 |

Answer #1

rate of return = ((selling price+dividend)/purchase price-1)*100 |

Return good times

=((81.27+3.73)/50-1)*100=70%

Return good times

=((28.97+1.03)/50-1)*100=-40%

Stock | |||||

Scenario | Probability | Return% | =rate of return% * probability | Actual return -expected return(A)% | (A)^2* probability |

Good times | 0.6 | 70 | 42 | 44 | 0.11616 |

Bad times | 0.4 | -40 | -16 | -66 | 0.17424 |

Expected return %= | sum of weighted return = | 26 | Sum=Variance Stock = | 0.2904 | |

Standard deviation of Stock % | =(Variance)^(1/2) |
53.89= 0.5389 |

Shares of Rampage are currently priced at $50.00 per share. The
following table indicates what could happen with the Rampage stock
price and dividend per share over the next year. What is the
expected standard deviation of Rampage stock’s
returns? Answer as a rate in decimal format so that
12.34% would be entered as .1234 and 0.98% would be entered as
.0098.
Outcome
Probability of outcome
Price of Rampage stock in 1 year
Dividend paid by Rampage in 1 year
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