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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 = Σ p(µ)
    = (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

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