Introduction

The intent of this assignment is to demonstrate that you can evaluate the riskiness of a stock using statistical analysis. An important consideration in investing is not only the expected return, but the likelihood that you would receive that return. There is a trade-off between risk and return. In order to receive a higher return, you have to bear more risk. The risk can be evaluated by calculating the standard deviation and coefficient of a variation of the stock.

Instructions

Use the blank table below to help you determine the standard deviation for the following stocks.

• Stock A will return a rate of 12% in a recession, 15% in normal conditions and 18% during a boom.  The expected return is 15%.
• Stock B will return a rate of 7% in a recession, 15% in normal conditions and 23% during a boom.  The expected return is 15%.

Additionally, use the standard deviation to determine the Coefficient of Variation. Finally, list the Range.

 Scenario Rate of Return Expected Return Deviation from Expected Return Squared Deviation Probability Squared Deviation x Probability (1) (2) (3) = (2) - (1) (4) = (3) x (3) (5) (4) x (5) Recession 0.25 Normal 0.5 Boom 0.25 Standard Deviation = CV = Range =

 Subject Business Due By (Pacific Time) 10/10/2014 12:00 am
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