Phoenix Company common stock is currently selling for $20 per share. Security analysts at Smith Blarney have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now:
Assuming that Phoenix is not expected to pay any dividends during the coming year, determine the standard deviation of possible rates of return on Phoenix stock (to the nearest tenth of a percent).
A) 456%
B) 20.9%
C) 2.2%
D) 21.4%

Question

Phoenix Company common stock is currently selling for $20 per share. Security analysts at Smith Blarney have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now: 
Assuming that Phoenix is not expected to pay any dividends during the coming year, determine the standard deviation of possible rates of return on Phoenix stock (to the nearest tenth of a percent).
A) 456% 
B) 20.9% 
C) 2.2% 
D) 21.4%

Quizplus · Accepted Answer

Solution: Expected return = 8% (See problem 55 solution.) s= [(-20% - 8%)²(0.25) + (0% - 8%)²(0.30) + (20% - 8%)²(0.25)+ (40% -8%)²(0.20)].⁵ = 21.4%

Phoenix Company Common Stock Is Currently Selling for $20 Per