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# Computer Company, Inc.: Standard Deviation and Rate of Retur

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Calculate the standard deviation of the expected dollar returns for Computer Company Inc., given the following distribution of returns:

Probability Return
0.2 \$50
0.5 \$20
0.3 -\$15

Part 2

Computer Company Inc. has a beta coefficient of 0.7 and a required rate of return of 15 percent. The market risk premium is currently 5 percent. If the inflation premium increases by 2 percentage points, and Computer Company Inc. acquires new assets which increase its beta by 50 percent, what will be Computer Company's new required rate of return?

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#### Solution Preview

Standard Deviation/ Rate of Return
Calculate the standard deviation of the expected dollar returns for Computer Company Inc., given the following distribution of returns:

Probability Return
0.2 \$50
0.5 \$20
0.3 -\$15

Expected Return = &#931; p(Âµ)
= (0.2) x 50 + (0.5) x 20 + (0.3) x (-15) = ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer what will be Computer Company's new required rate of return.

\$2.49