a) Future Returns You are interested in the shares of Tesla. To evaluate its risk...
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Finance
a) Future Returns
You are interested in the shares of Tesla. To evaluate its risk and return, you produced a scenario analysis for the coming year:
| Revenue Growth | Probability, p(s) | Share Price | HPR |
| Very high | 0.1 | $900 | 50% |
| High | 0.2 | $750 | 25% |
| Medium | 0.6 | $600 | 0% |
| Slow or no growth | 0.1 | $300 | -50% |
Current ABC LTD share price is $600; ABC LTD does not pay dividends; T-bill rate is 1%.
- Fill in the holding period returns in the table. Then, compute the expected return, standard deviation, and the Sharpe ratio of ABC LTD.
- Suppose investor sentiment for EV stocks suddenly drops. As a result, the risk premium on ABC increases to 25%. Assume future price projection for ABC stay the same. How much would ABCs current share price drop?
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