The beta of Microsoft's stock is 1.2, whereas the risk-free rate of return is 4 percent. Assume that the expected return on the market is 16 percent. Then, what is the expected return on Microsoft stock?
The return distribution for the asset XYZ is as shown below:
- 0.1 0.10
+ 0.1 0.40
What is the standard deviation for the XYZ returns?© BrainMass Inc. brainmass.com October 10, 2019, 4:31 am ad1c9bdddf
Please refer attached file for better clarity of formulas and tables.
Risk Free rate=rf=4%
Expected market return=rm=16%
Expected return on stock=rf+b*(rm-rf)=18.40%
Probability, P Return(R) P*R
There are two problems. Solution to first problem depicts the steps to calculate the expected return of a stock. Solution to second problem describes the steps to calculate mean and standard deviation of returns.