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QUESTION
ou are considering investing $7,500 in one of the following equity securities: Acme Corp. stock is currently selling for $100 per share with no...
ou are considering investing $7,500 in one of the following equity securities:
- Acme Corp. stock is currently selling for $100 per share with no dividend. In one year, you believe that there is a 55% chance the stock will be worth $105, a 40% chance the stock will be worth $145, and a 5% chance the stock will be worth $50.
- Stark Industries stock is currently selling for $75 per share with a dividend of $0.25 per share. In one year, you believe that there is a 70% chance the stock will be worth $78 and a 30% chance the stock will be worth $85 (assume the dividend will not change).
a. Find the return for each scenario.
b. Find the expected return of each investment.
c. Find the standard deviation of each investment.
d. Which investment option would you choose and why? Discuss risk tolerance, expected returns, and standard deviation in your answer.
*For full credit, please be sure to show the equations you use and the numbers you plugged in for parts A-C.
