Expected Return: Discrete Distribution
A stock’s return has the following distribution:
| Demand for the Company’s Products |
Probability of This Demand Occurring |
Rate of Return if This Demand Occurs (%) |
||
| Weak | 0.1 | -45% | ||
| Below average | 0.2 | -8 | ||
| Average | 0.4 | 14 | ||
| Above average | 0.2 | 35 | ||
| Strong | 0.1 | 70 | ||
| 1.0 |
Calculate the stock’s expected return. Round your answer to two decimal places.
%
Calculate the standard deviation. Round your answer to two decimal places.
%
Suppose rRF = 3%, rM = 10%, and rA = 12%.
Calculate Stock A’s beta. Round your answer to two decimal places.
If Stock A’s beta were 1.9, then what would be A’s new required rate of return? Round your answer to two decimal places.
%
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