Answered: 4. Given the probability and returns…

4. Given the probability and returns associated with each state, what is the expected return? What is the standard deviation? Probability Return 0.1 -0.5 0.2 -0.05 0.4 0.16 0.2 0.25 0.1 0.6

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter5: Probability: An Introduction To Modeling Uncertainty

Section: Chapter Questions

Problem 28P

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

4. Given the probability and returns associated with each state, what is the expected return? What is
the standard deviation?
Probability
Return
0.1
-0.5
0.2
-0.05
0.4
0.16
0.2
0.25
0.1
0.6

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