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1. Ramesh wanted to purchase the stock of ABC Ltd. He estimated the return and probabilities...

1. Ramesh wanted to purchase the stock of ABC Ltd. He estimated the return and probabilities of returns by analyzing the past records. Calculate the risk and return of the stock to help him make an investment decision.

Probability          Returns (%)

0.4                        25

0.25                       18

0.35                       20

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Answer #1

Expected Return = 0.40(0.25) + 0.25(0.18) + 0.35(0.20)

Expected Return = 21.50%

Standard Deviation = [0.40(0.25 - 0.215)2 + 0.25(0.18 - 0.215)2 + 0.35(0.20 - 0.215)2]1/2

Standard Deviation = 2.96%

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