contestada

A stock will provide a rate of return of either −18% or 26%. If both possibilities are equally likely, calculate the stock's expected return and standard deviation. (Do not round intermediate calculations. Enter your answers as a whole percent.)

Respuesta :

pedrocarratore

Answer:

The expected return is 4% and the standard deviation is 22%.

Explanation:

Since both outcomes are equally likely, the expected value is the mean of both possible outcomes:

[tex]E(X) = \frac{-0.18+0.26}{2}=0.04 = 4\%[/tex]

The standard deviation for this stock is:

[tex]S = \sqrt{0.5*(-0.18-E(X))^2+0.5*(0.26-E(X))^2}\\S = \sqrt{0.5*(-0.18-0.04))^2+0.5*(0.26-0.04)^2}\\S= 0.22 =22\%[/tex]

The expected return is 4% and the standard deviation is 22%.

abiolataiwo2015

Based on the information given the stock's expected return is 4% and standard deviation is 22%.

a. Stock's expected return

Stock's expected return=0.5(-18%) + 0.5(26%)

Stock's expected return =-9%+13%

Stock's expected return =4%

b. Standard deviation

First step is to calculate the variance

Variance =[0.5(-18%-4%)²] + [0.5(26%-4%)²]

Variance=[0.5(-22)²]+[0.5(22%)²]

Variance=242%+242%

Variance= 484%

Second step is to calculate the standard deviation

Standard Deviation =√484%

Standard Deviation = 22%

Inconclusion the stock's expected return is 4% and standard deviation is 22%.

Learn more about here:https://brainly.com/question/20853082

Otras preguntas