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Phoenix Company common stock is currently selling for $20 per share. Security analysts at Smith Blarney have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now: Price Rate of Return Probability $16 –20% 0.25 20 0% 0.30 24 +20% 0.25 28 +40% 0.20 Assuming that Phoenix is not expected to pay any dividends during the coming year, determine the coefficient of variation for the rate of return on Phoenix stock.

Respuesta :

Answer:

Risk on stock is 21.4%

Step-by-step explanation:

Expected return on phoenix stock =

= - 20% ×0.25 + 0%×0.30 + 20%×0.25 + 40%×0.20

= - 5% + 0% + 5% + 8%

= 8%

Risk on stock is calculated as

Risk = [0.25(-20% -8%)^2 +0.30(0%-8%)^2 + 0.25(20% - 8%)^2 + 0.20(40% - 8%)^2]^{1/2}

[tex]= [0.25\times 784 + 0.30\times 64 + 0.25\times 144 + 0.20\times 1024]^{1/2}[/tex]

[tex]= [196 + 19.20 + 36 + 204.80]^{1/2}[/tex][tex]= 456^{1/2}[/tex]

      =21.4%

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