RiskandReturn - RiskandReturn RiskandReturn...

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Risk and Return FINC 3630 Yost Risk and Return The Risk Return Trade off All else equal, people _____________. All else equal, people _____________. Calculating Percent and Dollar Returns On ________________, Home Depot stock closed at $_________. It paid dividends of __________________________________ __________________________________. It is currently trading at $_ . What is your dollar return over this period? What is your percent return?
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Risk and Return FINC 3630 Yost Home Depot The stock of Home Depot has had the following annual returns: Mean Arithmetic Mean: R R   T R T ... 1 Sample Variance ( 2 ) The variance ( 2 ) of returns tells us how much the actual returns each year vary from the average return. In other words, it is a measure of the volatility of returns.   2 2 2 2 1 2 ... 1 1 R R R R R R T T T t t R R T 1 2 2 1 1
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Risk and Return FINC 3630 Yost Sample Standard Deviation ( ) The standard deviation ( ) is just the square root of the variance and explains the deviation from expected returns as a percentage. 2 The Normal Distribution 68.26% 95.46% 99.74% Expected Returns There are four possible states of the world: really bad with a probability of 10%, bad with a probability of 30%, so so with a probability of 40% and supe duper with a probability of 40%, and super probability of 20%. Obama, Inc. stock will have a return of 3% in the really bad state, 3% in the bad state, 7% in the so so state, and 10% in the super duper state. What is the expected return on this stock?
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Risk and Return FINC 3630 Yost Expected Returns Biden, Inc. stock will have a return of 2% in the really bad state, 4% in the bad state, 10% in the so so state, and 20% in the super duper state What is the expected return on this state. What is the expected return on this stock?
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This note was uploaded on 12/11/2011 for the course FINC 3630 taught by Professor Jensen,m during the Summer '08 term at Auburn University.

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RiskandReturn - RiskandReturn RiskandReturn...

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