Problem 6-06 Expected Returns: Discrete Distribution The market and Stock J have the following probability distributions:...

Problem 6-06
Expected Returns: Discrete Distribution

The market and Stock J have the following probability distributions:

Probability	r_M	r_J
0.3	12%	19%
0.4	10	3
0.3	17	11

Calculate the expected rate of return for the market. Round your answer to two decimal places.
%

Calculate the expected rate of return for Stock J. Round your answer to two decimal places.
%
Calculate the standard deviation for the market. Do not round intermediate calculations. Round your answer to two decimal places.
%

Calculate the standard deviation for Stock J. Do not round intermediate calculations. Round your answer to two decimal places.
%

Solutions

Expert Solution

Solution :

a, The expected rate of return for the market = 12.70 %

The expected rate of return for Stock J = 10.20 %

b. The standard deviation for the market = 2.9343 %

= 2.93 % ( when rounded off to two decimal places )

The standard deviation for Stock J = 6.6453 %

= 6.65 % ( when rounded off to two decimal places )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 6 months ago

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