Draw the probability distribution of its returns

Assignment Help Financial Management

Reference no: EM132059828

In a world of uncertainty, we cannot tell 100% certain what could happen. Thus, we must speak in terms of expected events. The expected rate of return of an investment, therefore, is stated as the weighted average of all possible events where those events are tied to the probability that each will occur.

When dealing with investment, we also need to know how risky is an investment, i.e. the prospect that we experience actual returns that are different from expected return.

a. Given the information on the table below, calculate expected rate of return and standard deviation of stock returns of iLight Inc. Explain the meaning of the numbers you've obtained from the calculations.

Demand for the company's products Probability of this demand occurs Rate of return if this demand occurs Weak 0.1 -30%

Below average 0.2 -5%

Average 0.4 12%

Above average 0.2 17%

Strong 0.1 25%

b. Assuming returns of the stock follow a normal distribution, draw the probability distribution of its returns. Explain the graph.

Reference no: EM132059828

Questions Cloud

Calculate free cash flow and the cash-generating efficiency : Calculate free cash flow and the cash-generating efficiency ratios of cash flow yield, cash flows to sales, and cash flows to assets

What rent should the manager charge to maximize revenue : Similarly, one additional unit will be occupied for each 6 dollar decrease in rent. What rent should the manager charge to maximize revenue?

Find all constant solutions to the differential equation : 1.) Find all constant solutions to the differential equation dy/dx = xy

At what rate is her shadow lengthening : At what rate is the tip of her shadow moving? At what rate is her shadow lengthening?

Draw the probability distribution of its returns : Assuming returns of the stock follow a normal distribution, draw the probability distribution of its returns. Explain the graph.

Largest rectangle with one corner at the origin : Find the area of the largest rectangle with one corner at the origin, the opposite corner in the first quadrant on the graph of the parabola

Find the resultant vector representing the path : Q1a. Find the resultant vector representing the path of the ship relative to the shore.

Label the steps and important values as you solve problem : Label the steps and important values as you solve the problem. Note that when you use the TVM Solver, show the all variables.

Prepare the depreciation table for XYZ truck : Prepare the depreciation table for XYZ's truck, assuming that the company uses the double-declining-balance depreciation method

User Account

All Pages