Course Solutions Uncategorized (Answered) : The following data represent the probability distribution of the holding period returns for an investment in Lazy Rapids Kayaks (L

(Answered) : The following data represent the probability distribution of the holding period returns for an investment in Lazy Rapids Kayaks (L

The following data represent the probability distribution of the holding period returns for an investment in Lazy Rapids Kayaks (LARK) stock. Probability, p(s) 0.356 0.444 0.20 HPR 30.00% 7.90% -18.60% State of the Economy Scenario #(s) Boom Normal growth Recession a. What is the expected return on LARK? (Round your answer to 2 decimal places.) Expected return b. What is the standard deviation of the returns on LARK? (Round your answer to 2 decimal places.) Standard deviation

Expert Answer


a) Expected Return E(r) = (pBoom*HPRBoom)+(pNormal growth*HPRNormal growth)+(pRecession*HPRRecession)

E(r) = (0.356*30%)+(0.444*7.9%)+(0.2*-18.6%) = 10.47 %

b) Standard Deviation = SQRT{Σ pi*(HPRi-E(r))2] where i

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