An Investor Has Purchased an Auto Stock

question 407

Multiple Choice

An investor has purchased an auto stock. It is expected that during a good economy, the stock will provide a 12% return, while in a poor economy the stock will provide an -4% return. The probability of a good economy is expected to be 70%. Given this information, calculate the standard deviation for this stock.

• A) 4.63%
• B) 5.53%
• C) 6.43%
• D) 7.33%
• E) 8.23%

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Definitions:

Constant Fraction

A concept in finance where a fixed percentage of an investment is allocated or rebalanced regularly to maintain a desired asset ratio.

Additional Debt

New borrowing by an individual or entity, adding to any existing obligations, and impacting financial leverage and risk profile.

Maximum Capacity

The highest level of output that a company can sustain to make a product or provide a service, under normal conditions.

Dividend Payout Ratio

A financial metric indicating the percentage of a company's earnings paid out to shareholders in the form of dividends.