Question
Consider the following information for the returns of two stocks: DoorDash Inc. (DASH) and The Coca-Cola Company (KO). You consider five possible scenarios for the
Consider the following information for the returns of two stocks: DoorDash Inc. (DASH) and The Coca-Cola Company (KO). You consider five possible scenarios for the stocks returns depending on how the economy performs over the coming year.
|
| Rate of Return if State Occurs |
|
State of Economy | Probability | Return on DASH stock | Return on KO stock |
Boom | 0.3 | 30% | 8% |
Above average | 0.2 | 20% | 8% |
Average | 0.2 | 10% | 10% |
Below average | 0.2 | 0% | 12% |
Recession | 0.1 | -20% | 15% |
a) Calculate the expected returns for DASH.
b) Calculate the standard deviation for DASH.
c) Given the expected return of KO is 9.9%, would you expect the standard deviation of KO to be higher or lower than that of DASH? Briefly explain.
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