Question

Answer the next 2 questions based on this information

The current share price of Qantas Airways Limited is $3.98, down from $7.4 in December 2019 due to the COVID-19 travel restrictions. You hold a positive view of the company's future performance and your analysis result is as follows:

Qantas share price analysis

	Return	Probability
Bad	-20%	20%
Neutral	10%	20%
Good	90%	60%

The expected return for Qantas is closest to?

A.10%

B.-20%

C.52%

D.90%

Assuming the expected return is 40%, the standard deviation of the return on Qantas is closest to:

A.24%

B.49%

C.15%

D.20%

Answer 1

(a)

	Return	Probability
	A	B	A X B
Bad	-20%	20%	-4%
Neutral	10%	20%	2%
Good	90%	60%	54%
Expected Return =	52%

Expected Return = Sum of (Return x Probabilty) of all conditions

So, As per above calculations

Expected Return = 52%

So the correct answer is (c) 52%

(b)

	Probability	Given Return	Expected Return	Given Return - Expected Return	(Given Return - Expected Return)2	Probability X (Given Return - Expected Return)2
	A	B	C	B X C = D	D2	A X D2
Bad	20%	-20%	40%	-60%	0.36	0.072
Neutral	20%	10%	40%	-30%	0.09	0.018
Good	60%	90%	40%	50%	0.25	0.15
					Total	0.24

Standard Deviation = 0.4898 or 48.98% or 49%(Approx.)

So the correct answer is (b) 49%

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