Question

A stock will provide a rate of return of either-22% or 33%. a. If both possibilities are equally likely, calculate the stock's expected return and standard deviation. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) Expected return Standard deviation b. If Treasury bills yield 5.5% and investors believe that the stock offers a satisfactory expected return, what must the market risk of the stock be? (Enter your answer as a whole percent. Market risk

Answer 1

1.
Expected return=0.5*(-22%)+0.5*33%=5.50%

Standard Deviation=sqrt(0.5*(-22%-5.50%)^2+0.5*(33%-5.50%)^2)=27.50%

2.
=5.50%-5.50%=0.00%