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The Meaning and Measurement of Risk
Complete the following problems:
- Problem 7-1: Standard Deviation
- Problem 7-2: Holding-Period Gain and Return
- Problem 7-3: Capital Asset Pricing Model
- Problem 7-4: Breakeven Point and Selling Price
- Problem 7-5: Operating Leverage
You can access the problem details by excel file.
Direction:
Complete the problems in an Excel spreadsheet. Be sure to show your work to receive credit.
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Explanation & Answer
Attached.
MODULE 7 CT PROBLEMS
THE MEANING AND MEASUREMENT OF RISK AND RETURN
CT 7 - 1
Chapter 6
STANDARD DEVIATION
Given the following probabilities and returns for UAE Corporation, find the Expected Return and
standard deviation.
DATA
PROBABILITY
RETURNS
0.15
5%
0.30
7%
0.40
12%
0.15
20%
Solution
Expected return
DEVIATION
10.65%
Deviation Squared
0.32%
0.13%
0.02%
0.87%
Variance
Standard Deviation
CT 7 - 2
HOLDING PERIOD GAIN AND RETURN
Probability
0.15
0.30
0.40
0.15
Probability x
Deviation
Squared
0.0479%
0.0400%
0.0073%
0.1311%
0.2263%
4.76%
Chapter 6
Suppose you purchased 30 shares of UAE Corporation stock for SAR 22.35 per share on February 1. On
O...
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