Given the following hypothetical end-of-period prices for shares of the Drill-On Corporation,
and assuming a current price of $50 per share:
a) Calculate the rate of return for each probability. What is the expected return? The variance of end-of-period returns? The range? The semi interquartile range?
b) Suppose forecasting is refined such that probabilities of end-of-period prices can be broken down further, resulting in the following distribution:
Calculate and explain the change in
a) The expected return;
b) The range of returns;
c) The semi interquartile range of returns. Calculate the semi variance of end-of-period returns. Why might some investors be concerned with semivariance as a measure of risk?