Standard deviation and expected return with probability

Standard deviation and expected return with probability

Consider the following information about Stock I and II:

State of Probability of Rate of Return if State Occurs

Economy State of Economy Stock I Stock II

Recession 014 -015 -015

Normal 012 029 043

Irrational ex- 074 029 027

uberance

The market risk premium is 8%, and risk-free rate is 28%

a What is the standard deviation percent on stock I’s
expected return and the stock beta?

b what is the standard deviation percent on stock II’s
expected return and the stock beta?

c Which stock I or stock II is “riskier”?

For standard deviation and beta: round answer to 2 decimal
places (eg:3216

Suppose two projects have the same expected business value Project A has a very high estimated business value along with a high probability of failure Project B has a much lower estimated business value along with a low probability of failure If you could do only one of the projects, which one would you choose and under what conditions?

Suppose sales for the past 6 months have been 109, 118, 97, 120, 92, and 116 Using a smoothing coefficient of 04, what is the exponentially smoothed value for the 4th period

 

Solution: