Question
Use that two sheets and following returns to answer the questions Donald is a new investor and has been closely watching a company by the
Use that two sheets and following returns to answer the questions
Donald is a new investor and has been closely watching a company by the name of USA Ltd., a pharmaceutical company aiming to develop a coronavirus vaccine.
Donald believes the following returns are possible in 2020 and has attached a probability to each potential outcome:
a)Calculate the Expected Return for USA Ltd. in 2020.
Showformula,calculationand aconcluding statementin your response.
b)Calculate the Risk (Standard Deviation) for USA Ltd. in 2020.
Showformula,calculationand aconcluding statementin your response.
c)Donald hired an experienced stock analyst, who advised Donald that based on his advanced modelling, the expected return and standard deviation for USA Ltd are at 7.50% and 45.00%, respectively. Using these new variables, detail the range of returns expected by investing in USA Ltd. at the 68% (one standard deviation) and 95% (two standard deviations) confidence levels.
Showvariables,calculationand aconcluding statementin your response.
d)Donald is considering investing all his savings in buying shares in USA Ltd.Explain to Donald why he should not do thisby referring to the risk/return trade-off and what action Donald can take to reduce some of the risk.
e)The beta value for USA is 1.9. Explain what this number means. Include in your answer two differences between thestandard deviationandbeta.
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