Expected rate of return and standard deviation of return

1. Stocks X and Y have the following probability distributions of expected future returns:

PROBABILITY X Y Rate of return Y Rate of return X
10% -10% -35% -4% -1%
20% 20% 0% 0% 4%
40% 12% 20% 8% 5%
20% 20% 25% 5% 4%
10% 38% 45% 5% 4%

a. Calculate the expected rate of return, khat, for Stock Y (expected return for Stock X, Kx hat, equals 12%).

b. Calculate the standard deviation of expected returns for Stock X. (that for Stock Y is 20.35%). Now Calculate the
coefficient of variation for Stock Y. Is it possible that most investors might regard Stock Y as being less risky than
Stock X? Explain.

2. Shalit Corporation's 2002 sales were $12 million. Sales were $6 million 5 years earlier (in 1997).

a. To the nearest percentage point, at what rate have sales been growing?
b. Suppose someone calculated the sales growth for Shalit Corporation in part a as follows:
"Sales doubled in 5 years. This represents a growth of 100 percent in 5 years, so dividing 100 percent by 5, we find the growth rate
to be 20 percent per year". Explain what is wrong with this calculation.

1. Stocks X and Y have the following probability distributions of expected future returns:

PROBABILITY X Y Rate of return Y Rate of return X
10% -10% -35% -4% -1%
20% 20% 0% 0% 4%
40% 12% 20% 8% 5%
20% 20% 25% 5% 4%
10% 38% 45% 5% 4%
14% 16%

a. Calculate the expected rate of return, khat, for Stock Y (expected return for Stock X, Kx hat, equals 12%).
I calculated 16% for stock X (the instructor said I should have 12%) where did I go wrong?
16%
Your answer is correct for X ( to be more accurate it is 15.6%)

PROBABILITY Y Probability * Y
10% -35% -3.50%
20% 0% 0.00%
40% 20% 8.00%
20% 25% 5.00%
10% 45% 4.50%
Expected return=Average= Σ= 14.00%

PROBABILITY X Probability * X
10% -10% -1.00%
20% 20% 4.00%
40% 12% 4.80%
20% 20% 4.00%
10% 38% 3.80%
Expected return=Average= Σ= 15.60%

b. Calculate the standard deviation of expected returns for Stock X. (that for Stock Y is 20.35%). Now Calculate the ...

Solution Summary

The solutions shows steps to calculate the expected rate of return and standard deviation of expected returns of stocks when the probability distribution of expected return are given.

If there is a 20% chance we will get a 16% return, a 30% chance of getting a 14% return, a 40% chance of getting a 12% return, and a 10% chance of getting an 8% return, what is the expectedrate of returnand the standard deviation?

You are considering a security with the following possible rates of return:
Probability Return (%)
0.30 9.5
0.15 12.0
0.25 15.0
0.30 16.0
Calculate the expectedrate of returnand the standard deviation of the returns.
Probability Return (%)
0.15 6

Calculate the expectedreturn, standard deviation, and C.V. of expected dollar returns for Ditto Copier, given the following distribution of returns:
Probability Return
.20 $50
.50 20
.30 -15

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEMS Your expectations from a one year investment in HiTech Computers is as follows:
Probability Rate of Return
.15 -.10
.15 -.20
.35 .00
.25 .15
.10 .15
1. What is the expected ret

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 0.14 -0.15 -0.15
Normal 0.12

Please see attached.
1-Portfolio expectedreturn you have 10,000 to invest ion a stock portifolio. Your choices are stock x with an expectedreturn of 14 percent and stock y with an expectedreturn of 9 percent .If your goal is creat a portfolio with an expectedreturn of 12.2 percent, how much money will you invest in stock

The beta of Microsoft's stock is 1.2, whereas the risk-free rate of return is 4 percent. Assume that the expectedreturn on the market is 16 percent. Then, what is the expectedreturn on Microsoft stock?
The return distribution for the asset XYZ is as shown below:
Return Probability
- 0.1 0.10
+ 0.1

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 expectedreturn for Alpha Corporation.
(B). Compute the standard deviation of the return on Alpha Corporati

Suppose A has an expectedreturn of 10 percent and a standard deviation of 20 percent. Asset B has an expectedreturn of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.6, what are the expectedreturnand standard deviation for a portfolio comprised of 30 percent Asset A and 70 percent