You are considering buying a share of stock in a firm that has the following two possible payoffs with the corresponding probability of occurring.The stock has a purchase price of $50.00.You forecast that there is a 40% chance that the stock will sell for $70.00 at the end of one year.The alternative expectation is that there is a 60% chance that the stock will sell for $30.00 at the end of one year.What is the expected percentage return on this stock,and what is the standard deviation of returns on this stock?
A)-8.00%,39.19%
B)-8.00%,15.36%
C)8.00%,15.36%
D)-4.00%,-30.72%

Question

Quizplus · Accepted Answer

The expected return is calculated as: (0.4 * (70-50)/50) + (0.6 * (30-50)/50) = -8.00%. The standard deviation is calculated using the formula for variance and then taking the square root, resulting in approximately 39.19%.

You Are Considering Buying a Share of Stock in a Firm