question archive The following information relates to Netherton's investment performance, during various economic conditions
The following information relates to Netherton's investment performance, during various economic conditions
Subject:FinancePrice:2.86 Bought9
The following information relates to Netherton's investment performance, during various economic conditions. Estimate the expected return and overall risk (standard deviation) of this investment. Economic conditions Boom Normal Recession Probability 0.20 0.60 0.20 Expected return +40% +15% -10% Required: 1.1. Calculate the expected risk of return of this investment. 1.2. Estimate the overall risk (standard deviation) of this investment. 1.3. Discuss the difference between expected return and required return. (10) (15) (10)
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1.1 Expected return
Expected return = Probability * Expected return
= .20*40% + .60*15% + .20*(-10%) = 15%
Expected return of Investment = 15%
1.2 )Standard deviation
= √.20*(.40-.15)^2 + .60*(15-.15)^2 + .20*(-.10-.15)^2 = √.025
Standard deviations = 15.81%
standard deviations of Investment = 15.81%
1.3
Expected return of return is a rate of return that a company Expected from a Investment
Required rate of return is a minimum rate of return that has earned by a company
