ch5 - Chapter 5 4. E(r) = [0.3 44%] + [0.4 14%] + [0.3...

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Chapter 5 4. E(r) = [0.3 × 44%] + [0.4 × 14%] + [0.3 × (–16%)] = 14% σ 2 = [0.3 × (44% – 14%) 2 ] +[0 .4 × (14% – 14%) 2 ] + [0.3 × (–16% – 14%) 2 ] = 0.0540 σ = 23.24% The mean is unchanged, but the standard deviation has increased. 5. a. The holding period returns for the three scenarios are: Boom: (50 – 40 + 2)/40 = 0.30 = 30.00% Normal: (43 – 40 + 1)/40 = 0.10 = 10.00% Recession: (34 – 40 + 0.50)/40 = –0.1375 = –13.75% E(HPR) = [(1/3) × 30%] + [(1/3) × 10%] + [(1/3) × (–13.75%)] = 8.75% σ 2 (HPR) = [(1/3) × (30 – 8.75) 2 ] + [(1/3) × (10 – 8.75) 2 ] + [(1/3) × (–13.75 – 8.75) 2 ] = 319.79 σ = 79 . 319 = 17.88% b. E(r) = (0.5 × 8.75%) + (0.5 × 4%) = 6.375%. σ = 0.5 × 17.88% = 8.94% 9. E(r_x) = 20% E(r_y) = 10% 10. Var(x) = 0.0592, std dev. (x) = 24.33%; Var(y) = 0.0175, std dev. (y) = 13.23%. 11. E(r) = 0.9*20% + 0.1*10% = 19%. 13. E(r) = 0.1*15% + 0.6*13% + 0.3*7% = 11.4%. 18.
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This note was uploaded on 04/09/2012 for the course FIN 431 taught by Professor Sun during the Spring '12 term at Old Dominion.

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ch5 - Chapter 5 4. E(r) = [0.3 44%] + [0.4 14%] + [0.3...

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