Consider an economy with two types of companies, S and I. The profits of companies S always move together, but the profits of companies I move independently of each other. For both firms, there is a 70% probability that the firm's return is 30%, and a 30% probability that the return is -30%. The standard deviation of an individual company's return is closest to the value: Choose one: A. 23.0% B. 5.25% C. 15.0% D. 10.0%

Consider an economy with two types of companies, S and I. The profits of companies S always move together, but the profits of companies I move independently of each other. For both firms, there is a 70% probability that the firm's return is 30%, and a 30% probability that the return is -30%. The standard deviation of an individual company's return is closest to the value: Choose one: A. 23.0% B. 5.25% C. 15.0% D. 10.0%

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 4QE: Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its...

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Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firms there is a 40% probability that the firm will have a 20% return and a 60% probability that the firm will have a -30% return. The standard deviation for the return on an individual firm is closest to A) -10.00% B) 24.49% C) 9.80% D) 12.25%
Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firms production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firms gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firms gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?
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Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 64% probability that the firm will have a 25% return and a 36% probability that the firm will have a -2% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in: a. 40 firms of type S? b. 40 firms of type l? a. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 40 firms of type S? Standard deviation is%. (Round to two decimal places.)
Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firms there is a 40% probability that the firm will have a 20% return and a 60% probability that the firm will have a -30% return. The standard deviation for the return on a portfolio of 20 type I firms is closest to: O A. -10% OB. 24.49% OC. 5.48% O D. 12.25%