Exam 5: Risk and Return - Introduction

Consider the following bet: heads I pay you a dollar, tails you pay me a dollar. What is the standard deviations of the payoffs (returns)of this bet? (Assume a fair coin.)

Compaq recently adjusted the probabilities for its expected cash flows in light of the Asian currency crisis. It revised the probability of favorable conditions from 32% to 18% and the probability of poor earnings from 7% to 17%. Which of the following is the most likely result from this revision?

An expected return from a portfolio

All of the following statements are true EXCEPT:

If an asset has a 35% probability of earning a 20% return and a 65% probability of earning a 5% return, what is its standard deviation?

Suppose you paid $18.50 per share for Commerce Group Inc. common stock and sold it one year later for $24 per share. What was your holding period return if the stock paid no dividends during the year?