In: Finance
Q1.Ripken Iron Works believes the following probability distribution exists for its stock. What is the standard deviation of return on the company's stock? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
State of the Economy |
Probability of State Occurring |
Stock's Expected Return |
|||||
Boom |
0.25 |
35% |
|||||
Normal |
0.45 |
13% |
|||||
Recession |
0.30 |
-26% |
Q2. Joel Foster is the portfolio manager of the Go Anywhere Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 8.75% and the risk-free rate is 2.50%. What rate of return should investors expect (and require) on this fund?
Stock |
Amount |
Beta |
A |
$1,075,000 |
1.20 |
B |
675,000 |
1.50 |
C |
750,000 |
3.35 |
D |
500,000 |
1.10 |
$3,000,000 |