We appreciate your visit to The rate of return on the common stock of Flowers by Flo is expected to be 15 percent in a boom economy 7 percent in. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!
Answer :
Answer:
the Expected rate of return will be 8.2%
the variance will be 0.001296
Explanation:
We will calculate the Expected Rate of Return which is the sum of the wieghted return based on their probabilities:
return of 0.15 probability 20% = 0.03
return of 0.07 probability 70% = 0.049
return of 0.03 probability 10% = 0.003
expected return = 0.082 = 8.2%
Now to calculate the variance we do:
∑(rk-ERR)^2 x pk
The sum of the difference between the expected rate and the escenario rate, power two, and multiply by their posibility
[tex](0.15-0.082)^{2}\times0.20+(0.07-0.082)^{2}\times0.70+(0.03-0.082)^{2}\times0.10[/tex]
the variance will be: 0.001296
Thanks for taking the time to read The rate of return on the common stock of Flowers by Flo is expected to be 15 percent in a boom economy 7 percent in. We hope the insights shared have been valuable and enhanced your understanding of the topic. Don�t hesitate to browse our website for more informative and engaging content!
- Why do Businesses Exist Why does Starbucks Exist What Service does Starbucks Provide Really what is their product.
- The pattern of numbers below is an arithmetic sequence tex 14 24 34 44 54 ldots tex Which statement describes the recursive function used to..
- Morgan felt the need to streamline Edison Electric What changes did Morgan make.
Rewritten by : Barada
To calculate the variance of the returns on Flowers by Flo's stock, we first find the expected return as 8.2% and then calculate the variance as 11.56%, which indicates the investment's risk level.
The question asks for the calculation of the variance of the returns on the stock of Flowers by Flo given the returns in different economic scenarios and their probabilities. To calculate the variance, we first need to determine the expected return, which is a weighted average of all possible returns. Then, we use the expected return to find the variance, which measures the dispersion of possible returns around the expected return, providing insight into the risk associated with the investment.
To calculate the expected return (E(R)):
E(R) = (0.20 * 15%) + (0.70 * 7%) + (0.10 * 3%) = 3% + 4.9% + 0.3% = 8.2%%
To calculate the variance (Var(R)):
Var(R) = [0.20 * (15% - 8.2%)²] + [0.70 * (7% - 8.2%)²] + [0.10 * (3% - 8.2%)²] = 11.56%%
