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Carson Inc.'s manager believes that economic conditions during the next year will be strong, normal, or weak, and she thinks that the firm's returns will have the probability distribution shown below. What's the standard deviation of the estimated returns? (Hint: Use the formula for the standard deviation of a population, not a sample.) Do not round your intermediate calculations. Economic Conditions Strong Normal Weak Prob. 30% 40% 30% Return 40.0% 10.0% -12.0% a 21.31% b. 26.10 @ 11.68% d. 1431 20.23% Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has very little risk. You agree that the stock is relatively safe, but you want to demonstrate that his risk would be even lower if he were more diversified. You obtain the following returns data for West Coast Bank (WCB). Both banks have had less variability than most other stocks over the past 5 years. Measured by the standard deviation of returns, by how much would your uncle's risk have been reduced if he had held a portfolio consisting of 57% in ECB and the remainder in WCB? (Hint: Use the sample standard deviation formula.) Do not round your intermediate calculations. Year ECB WCB 40.00% 40.00% 2 -10.00% 17.00% 37.00% -5.00% -5.00% -10.00% 17.00% 37.00% 1 4 5 15.80% 23.10% 15.80W 23.10% Average return Standard deviation a. 0.55 pp 0.0.49 pp O 6.25 pp Od 426 pp 2.3.81P Matthew Angel holds a $200,000 portfolio consisting of the following stocks: Stock Investment Beta A $50,000 0.90 B $50,000 1.40 $50,000 1.00 OD $50,000 1.30 Total $200,000 What is the portfolio's beta? Do not round your intermediate calculations. a. 1.150 O b. 1.400 O c. 1.131 d. 0.288 e. 0.575 Returns for the Dayton Company over the last 3 years are shown below. What's the standard deviation of the firm's returns? (Hint: This is a sample, not a complete population, so the sample standard deviation formula should be used.) Do not round your intermediate calculations, Year Return 1 15.00% 2 -12.50% 3 20.00% a. 3.82% b.14.29% C. 24.75W d. 17.50W e. 3.12%

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