The expected possible outcomes for Roxy Stock are below. What is the expected return? (Show your...

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Answer 1

Answer #1

Expected return =(p1× r1) + (p2× r2) + (p3× r3)

P= probability of each return

r= rate of return

E(r)= expected return

Expected return = (0.4 × - 0.25)+ (0.25× 0.20) +(0.35 ×0.45)

Expected return = (-1) + 0.05 + 0.1575= 0.1075 or 10.75%

Variance = p1( r1 - E(r) )^ 2 + p2 (r2- E(r)) ^2 + p3 (r3- E(r))^ 2

Variance = 0.4 ( -0.25-0.1075) ^ 2 + 0.25(0.20 -0.1075)^2 + 0.35(0.45 -0.1075)^2

Variance = 0.0511225 + 0.0021391+ 0.0410572= 0.1456552

Standard deviation = (0.1456552) ^ .5= 0.381648

Answer 2

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