Question

An investor is looking at a stock that has four possible values in the next year. The probabilities and returns are shown below. OUTCOME: Probability Return Strong Economy 0.24 25.00% Good Economy 0.26 10.00% Poor Economy 0.32 0.00% Recession 0.18 -11.00% What is the standard deviation of these returns based on the probabilities? Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

#10 A stock has a Beta of 0.80. The current risk free rate in the economy is 1.75%, while the market portfolio risk premium is 6.00%. Find the cost of equity for this stock. Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924)) unanswered not_submitted

Answer 1

9)

: x E43 A B C for =B43-$D$48 D E Expected return [rxP(r)= u] r-μ 6.00% 18.38% 2.60% 3.38% 0.00% -6.62% -1.98% -17.62% (r-u)^2 42 43 44 45 46 Probability [(P(r)] 0.24 0.26 0.32 0.18 Return (r) 25.0% 10.0% 0.0% -11.0% 3.38% 0.11% 0.44% 3.10% P(r)x(r-u)^2 0.81% 0.03% 0.14% 0.56% Expected 48 return HE 6.62% Variance (012) 1.53956% Standard deviation (o) 12.41%

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