Home town grocery has invested in yogurt stands for its stores. the investment cost the company $100,000. variable materials, pr
1 answer:
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Answer:
a) A = 4.50% and B = 2.00%
b) SD for A = 4.15 %
c) Portfolio Return = 3.0%
Explanation:
a) Expected Returns for Both A and B respectively:
In order to calculate the expected returns, let's categorize the given data first.
Economy Probability Stock A Stock B
Booming 0.30 10% 20%
Neutral 0.30 5% 0%
Recession 0.40 0% -10% (not 10%)
So,
Expected Return for Stock A:
A = Sum of (all Probability x Stock A)
A = (0.30 x 0.10) + (0.30 x 0.05) + (0.40 x 0.00)
A = 0.045
<u><em>A = 4.50 % </em></u>
Return for Stock B:
B = Sum of all Probability x Stock B
B = (0.30 x 0.20) + (0.30 x 0.00) + (0.40 x -0.10)
B = 0.002
<u>B = 2.0%</u>
<em>b) Standard Deviation /Risk for Stock A:</em>
SD for A = Sum (Square Root (Probability*(Stock A Return - Expected Return of Stock A)²) )
SD for A =
SD for A = 0.0415
<u><em>SD for A = 4.15%</em></u>
c) Portfolio Return Given that:
Value Weight Return
Stock A 4000 0.4 4.50%
Stock B 6000 0.6 2.0%
10000
Portfolio Return = Sum of ( Weight x Return)
= (0.4 x 0.045) + (0.6 x 0.02)
= 0.03
<em><u>Portfolio Return = 3%</u></em>
Answer:
Future value = 16007.81437
Explanation:
we have to compound all the rates for the time period together as the 7,750 as exposed to this rate and their interest generated in one period are taking into consideration for the subsequent period interest calculations.
We multiply them and get the future value factor:
we now can solve for future value:
Future value = 16007.81437