What is the expected return for an individual firm

Reference no: EM13304262

Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firms, there is a 70% probability that the firm will have a 20% return and a 30% probability that the firm will have a -30% return.

(a) What is the expected return for an individual firm?

(1) 14%
(2) 3%
(3) 5%
(4) -5%

(b) The standard deviation of the return on an individual firm is closest to:

(1) 23%
(2) 5.25%
(3) 15%
(4) 10%

(1) 5.1%
(2) 23%
(3) 15%
(4) 5.25%

(d) The standard deviation of the return on an equally-weighted portfolio of 20 I firms is closest to:

(1) 5.25%
(2) 5.1%
(3) 15%
(4) 23%

Reference no: EM13304262

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