In: Finance
Use the information in the table below (related to Tostitos Corp.) to answer the following questions
Economic State |
Probability (%) Return (%) |
|
Deep Recession |
10 |
-15 |
Recession |
20 |
-10 |
Normal Economy |
50 |
2 |
Economic Expansion |
20 |
15 |
What is the expected return for Tostitos Corp.’s stock? [3 points]
What is the Tostitos Corp’s standard deviation of returns? [4 points]
What is the 95% confidence interval associated with the returns of Tostitos Corp.’s
stock? [3 points]
If you wish to create a portfolio with an expected return of 5%, what is the weight of each of Tostitos Corp. and TD Bank that you would hold? [4 points]
What is the standard deviation of returns of this portfolio? [3 points]
What is the 95% confidence interval associated with this portfolio? [3 points]
Calculation of Expected Return | |||
Economic State | Probability (%) (A) | Return (%) (B) | Expected Return(%) (A)*(B) |
Deep Recession | 10.00 | (15.00) | (1.50) |
Recession | 20.00 | (10.00) | (2.00) |
Normal Economy | 50.00 | 2.00 | 1.00 |
Economy expension | 20.00 | 15.00 | 3.00 |
Expected Return | 0.50 |
Calculation of Standard Deviation | |||||
Economic State | Probability (%) (A) | Return (%) (X) | (X- Expected Return) | (X- Expected Return)^2 | (A)*(X- Expected Return)^2 |
Deep Recession | 10.00 | (15.00) | (15.50) | 240.25 | 24.03 |
Recession | 20.00 | (10.00) | (10.50) | 110.25 | 22.05 |
Normal Economy | 50.00 | 2.00 | 1.50 | 2.25 | 1.13 |
Economy expension | 20.00 | 15.00 | 14.50 | 210.25 | 42.05 |
Variance | 89.25 |
Standard Deviation = variance^1/2
= 89.25^1/2
Standard Deviation = 9.45
95% confidence interval associated with the return is Calculated using Table of Normal Distribution
Therefore,
95% confidence interval associated with the return is 9.26