Question
Here are the estimated ROE distributions for Firms A, B, and C: Probability 0.1 0.2 0.4 0.2 0.1 Firm A: 0.0% 5.0% 10.0% 15.0% 20.0%
Here are the estimated ROE distributions for Firms A, B, and C:
| Probability | |||||
| 0.1 | 0.2 | 0.4 | 0.2 | 0.1 | |
| Firm A: | 0.0% | 5.0% | 10.0% | 15.0% | 20.0% |
| Firm B: | (2.0) | 5.0 | 12.0 | 19.0 | 26.0 |
| Firm C: | (5.0) | 5.0 | 15.0 | 25.0 | 35.0 |
a. Calculate the expected value and standard deviation for Firm C's ROE, ROEA =10%, sA =5.5%, ROEB =12%, sB =7.7%.
b.Discuss the relative riskiness of the three firms' returns. (Assume that these distributions are expected to remain constant over time.)
c. Now suppose that all three firms have the same standard deviation of basic earning power (EBIT/Total assets), sA =sB =sC.=5.5% . What can we tell about the financial risk of each firm
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Social Finance Shadow Banking During The Global Financial Crisis
Authors: Neil Shenai
1st Edition
3030082318, 978-3030082314
