Xpected return and the variance of the return for each stock

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Reference no: EM132064669

1. You are offered a security that will pay you $2,500 at the end of the year forever. If your discount rate is 8%, what is the most you are willing to pay for this security?

2. The return on stock A will be –10% or +20%, each with probability 0.5. The return on stock B will be –5% or +15%, with probabilities 0.3 and 0.7 respectively.

Calculate the expected return and the variance of the return for each stock.

Reference no: EM132064669

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