Assignment:
You are considering a security with the following possible rates of return:
Probability Return (%)
15% 5%
30% 10%
40% 14%
15% 16%
A. Calculate the expected rate of return.
B. Calculate the standard deviation of the returns.
C. Calculate CAPM and use it to make your decision, should the security be purchased? Use the information calculated above. Assume a required market return of 10%, a risk free rate of 5% and a beta of 1.3.