1. Use the information in the Table below to calculate the standard deviation fo
ID: 2723028 • Letter: 1
Question
1. Use the information in the Table below to calculate the standard deviation for Stock A.
2. Which of the following investment classes had the greatest average return and greatest volatility based on historical data from 1926 to the present?
Small US stocks
Large US stocks
Short-term government bonds
Long-term government bonds
3. If you borrow $250,000 to buy a house and the interest rate is 5 percent per year, what is the amount of the MONTHLY payment if it takes you 30 years to pay off the loan?
$1,045
$1,088
$1,342
$1,509
4. Which of the following SHOULD be included in a project's free cash flow calculations?
investment in working capital
sunk costs
allocated overhead expenses
noncash revenues of the company's nearest competitor
Probability Return % 0.30 60 0.50 20 0.20 10Explanation / Answer
1)
expected return for A=0.30*60%+0.50*20%+0.20*10%=18%+10%+2%=30%=0.30
variance for Stock A = 0.30*(0.60-0.30)^2+0.50*(0.20-0.30)^2+0.20*(0.10-0.30)^2
variance for Stock A = 0.30*(0.30)^2+0.50*(0.10)^2+0.20*(0.20)^2
variance for Stock A = 0.30*(0.09)+0.50*(0.01)+0.20*(0.04)=0.04
=>standard deviation for Stock A=sqrt(variance)=sqrt(0.04)=0.20=20%
2)Large US stocks
Large US stocks had the greatest average return and greatest volatility based on historical data from 1926 to the present as compared to other asset classes.
3)
4) investment in working capital
investment in working capital SHOULD be included in a project's free cash flow calculations as these affect the cash flows of the firm.
Probability(pi) Return % Exp Return, ERi=pi*Return pi*(ERi- ERi)^2 0.30 60% 18.00% 0.027 0.50 20% 10.00% 0.005 0.20 10% 2.00% 0.008 ExpectedReturn = ERi= 30.00% 0.0400 (=Var(Return)=pi*(ERi- ERi)^2 0.0400 standard deviation=sqrt(Var(Return)) 20.00%Related Questions
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