A stock returned 23 percent, 18 percent, -4 percent and -1 percent annually for the past...

A stock returned 23 percent, 18 percent, -4 percent and -1 percent annually for the past four years. Based on this information, what is the 99.74 percent probability range for any one given year? A. -4.49 percent to 22.49 percent B. -22.36 percent to 39.36 percent C. -31.47 percent to 49.47 percent D. -17.98 percent to 35.98 percent

Assume an asset cost $44,500 and has a current book value of $25,700. The asset is sold today for $21,900 cash. The firm's tax rate is 21 percent. As a result of this sale, the firm's net cash flow: A. will increase by exactly $21,900 B. will decrease by the difference between the $25,700 and the $21,900. C. will increase by more than $21,900. D. will increase by less than $21,900.

Baxter's Market is considering opening a new location with an initial cost of $548,700. This location is expected to generate cash flows of $242,400, $201,500, $187,800, and $241,000 in Years 1 to 4. What is the payback period? A. 3.04 years B. 2.18 years C. 2.56 years D. 2.93 years

Expert Solution

1.

Average return and standard deviation of stock return is calculated in excel and screen shot provided below:

Average return is 9% and standard deviation is 13.49%.

Z value at 99.74% confidence interval = 3.00

Expected return = Average return ± Z× Standard deviation

= 9.00% ± (3.00 × 13.49%)

= 9.00% - 40.47% and 9.00% + 40.47%

= -31.47% to +49.47%

Hence, probability range for any one given year is -31.47% to +49.47%.

Option (C) is correct answer.

jeff jeffy answered 2 years ago

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