Solution-Compute the standard deviation of the expected

Compute the standard deviation of the expected return

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(a) Compute the standard deviation of the expected return given the economic states, their likelihoods, and the potential returns.

Economic State	Probability	Return
Fast Growth	0.3	25%
Slow Growth	0.5	6%
Recession	6 x	-5%
Depression	2x	-17%

(b) You are convinced your company which has a beta of 1.3 will earn a return of 15% the coming year. It is observed that the expected rate of return on the market is 13% and the rate on T-Bills is 5%. Based on your firm's level of risk, determine the return it should earned and based on your position state, giving reasons if the firm over or under valued.

Reference no: EM133110830

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Compute the standard deviation of the expected return

Reference no: EM133110830

Reference no: EM133110830

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