Grossnickle corporation issued 20-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. today,
1 answer:
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Answer:
4.53%
Explanation:
Data provided in the question:
Expected return = ∑ (Return × probability)
Thus,
Expected return = (0.06 × 22) + (0.92 × 13) + (0.02 × (-15))
= 12.98%
Now,
Probability Return Probability × (Return-Expected Return)²
0.06 22 0.06 × (22% - 12.98%)² = 4.8816
0.92 13 0.92 × (13% - 12.98%)² = 0.000368
0.02 -15 0.02 × (-15% - 12.98%)² = 5.657608
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Total = 20.5396%
Standard deviation =
= √(20.5396)
= 4.53%