Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A company is evaluating a security as a standalone investment. The risk-free rate of return is 5.1% per annum. The probability distribution of annual returns

A company is evaluating a security as a standalone investment. The risk-free rate of return is 5.1% per annum. The probability distribution of annual returns for the security is given in the table below:

Return

Probability

-2%

0.15

5%

0.3

7%

0.4

10%

0.15

(a) Calculate the expected return of the security. (2 marks)

(b) Calculate risk (standard deviation) of the security. (4 marks)

(c) Explain whether the company should invest in this security. (3 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Numerical Techniques In Finance

Authors: Simon Benninga

1st Edition

0262022869, 978-0262022866

More Books

Students also viewed these Finance questions