PS_Ch12_sol1

PS_Ch12_sol1 - 0.11106) = -16.21 percent Probability of...

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Ch12. ADABC / CCECB / ECCBA / BEDD 16. Total dollar return = ($8.60 - $11.20 + $0.25) × 1,500 = -$3,525 17. Total percentage return = ($15.60 - $9.60 + $0.10)/$9.60 = 63.54 percent 18. Average return = (0.11 - 0.18 - 0.21 + 0.05 + 0.34)/5 = .022; σ = [1/(5 - 1)] [(0.11 - 0.022) 2 + (-0.18 - 0.022) 2 + (-0.21 -0.022) 2 + (0.05 - 0.022) 2 + (0.34 - 0.022) 2 ] = 22.60 percent 19. Average return = (0.14 + 0.13 - 0.10 + 0.07)/4 = 0.06 σ = [1/(4 - 1)][(0.14 - 0.06) 2 + (0.13 - 0.06) 2 + (-0.10 - 0.06) 2 + (0.07 - 0.06) 2 ] = 0.11106 Lower bound of 68 percent range = 0.06 - (1 × 0.11106) = -5.11 percent Lower bound of 95 percent range = 0.06 - (2
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Unformatted text preview: 0.11106) = -16.21 percent Probability of losing more than 10 percent in any given year is between 2.5 and 16 percent. Thus, the probability of NOT losing more than 10 percent is between 84 and 97.5 percent. 20. There is a reward for bearing risk over the long-term. However, the nature of risk implies the returns on a high risk security will be more volatile than the returns on a low risk security. Thus, stocks can produce lower returns in the short run. It is the acceptance of this risk that justifies the potential long-term reward....
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