Expected returns

QUESTION

Stocks X and Y have the following probability distributions of expected future returns:PROBABILITY X Y0.1 7% 30%0.3 3 00.3 16 240.2 20 250.1 29 40a. Calculate the expected rate of return, , for Stock Y.( = 11.90%.) Round your answer to two decimal places.b. Calculate the standard deviation of ex
a &c probability return probability* return return-expected return (return-expected return)^2 probability * (return-expected return)^2 0.10 -30% -0.0300 -0.46 0.2134 0.02134 0.20 0% 0.0000 -0.16 0.0262 0.00525 0.30 22% 0.0660 0.06 0.0034 0.00101 0.20 25% 0.0500 0.09 0.0077 0.00155 0.20 38% 0.0760 0.22 0.0475 0.00950 Total 0.1620 0.03866 Expected return 16.20% variance 0.03866 Standard deviation (0.03866)^(1/2) Standard deviation 19.66% Coefficient of variation standard deviation/Expected return Coefficient of variation 1.21 b probability return probability* return

xpected return (return-expected return)^2 probability * (return-expected return)^2 0.10 -14% -0.0140 -0.27 0.0718 0.00718 0.20 3% 0.0060 -0.10 0.0096 0.00192 0.30 12% 0.0360 -0.01 0.0001 0.00002 0.20 20% 0.0400 0.07 0.0052 0.00104 0.20 30% 0.0600 0.17 0.0296 0.00592 Total 0.1280 0.01608 Expected return 12.80% variance 0.01608 Standard deviation (0.01608)^(1/2) Standard deviation 12.68%

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION