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Calculating the expected return and standard deviation

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Consider the following probability distribution of returns for Alpha Corporation:

Current Stock Price ($25):
One Year ($) $35, $25, $20;
Return R: 40%, 0%, -20%;
Probability PR: 25%, 50%, 25%.

(A). Compute the expected return for Alpha Corporation.
(B). Compute the standard deviation of the return on Alpha Corporation.

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Solution Summary

The solution describes the steps to calculate the expected return and standard deviation in the given case.

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Please refer attached file for better clarity of tables and missing formulas.

Expected Return
Probability, P Return(R) P*R
0.25 40% 0.1
0.50 0% ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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