We appreciate your visit to You recently purchased a share of Yellow Submarine stock that is expected to earn 15 percent in a booming economy 10 percent in a normal. 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 :
The expected rate of return on the Yellow Submarine stock is 8.7%, and the standard deviation is approximately 4.6%.
What is the expected rate of return and standard deviation of the Yellow Submarine stock based on the given probabilities and returns in different economic scenarios?
To calculate the expected rate of return on the Yellow Submarine stock, we need to consider the returns in different economic scenarios and their probabilities. We can use the formula:
Expected Rate of Return = (Return in Boom * Probability of Boom) + (Return in Normal * Probability of Normal) + (Return in Recession * Probability of Recession)
Expected Rate of Return = (0.15 * 0.10) + (0.10 * 0.70) + (0.01 * 0.20)
Expected Rate of Return = 0.015 + 0.07 + 0.002
Expected Rate of Return = 0.087 or 8.7%
Therefore, the expected rate of return on the Yellow Submarine stock is 8.7%.
To calculate the standard deviation, we need to determine the variability of returns in different economic scenarios. We can use the following formula:
Standard Deviation = √[((Return in Boom - Expected Return)²* Probability of Boom) + ((Return in Normal - Expected Return)² * Probability of Normal) + ((Return in Recession - Expected Return)² * Probability of Recession)]
Standard Deviation = √[((0.15 - 0.087)² * 0.10) + ((0.10 - 0.087)² × 0.70) + ((0.01 - 0.087)² × 0.20)]
Standard Deviation = √[(0.006769 × 0.10) + (0.000169 × 0.70) + (0.006769 ×0.20)]
Standard Deviation = √[(0.0006769) + (0.0001183) + (0.0013538)]
Standard Deviation = √0.002148 or 0.046 or 4.6%
Therefore, the standard deviation of the Yellow Submarine stock is approximately 4.6%.
The expected rate of return provides an estimate of the average return an investor can expect from the stock, while the standard deviation measures the volatility or risk associated with those returns.
Learn more about Submarine
brainly.com/question/13952313
#SPJ11
Thanks for taking the time to read You recently purchased a share of Yellow Submarine stock that is expected to earn 15 percent in a booming economy 10 percent in a normal. 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
