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Differences between the standard deviation and beta

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Reference no: EM132908198

Scott is a new investor and has been closely watching a company by the name of AUS Ltd., a pharmaceutical company aiming to develop a coronavirus vaccine.

Scott believes the following returns are possible in 2021 and has attached a probability to each potential outcome:

Probability Possible Return

.20 200.00%
.30 90.50%
.40 -5.00%
.10 -100.00%

a) Calculate the Expected Return for AUS Ltd. in 2021. Show formula, calculation, and a concluding statement in your response.

b) Calculate the Risk (Standard Deviation) for AUS Ltd. in 2021. Show formula, calculation, and a concluding statement in your response.

c) Scott hired an experienced stock analyst, who advised Scott that based on his advanced modeling, the expected return and standard deviation for AUS Ltd are at 9.00% and 35.00%, respectively. Using these new variables, detail the range of returns expected by investing in AUS Ltd. at the 68% (one standard deviation) and 95% (two standard deviations) confidence levels.
Show variables, calculation, and a concluding statement in your response.

d) Scott is considering investing all his savings to buy shares in AUS Ltd. Explain to Scott why he should not buy by referring to the risk/return trade-off and what action Scott can take to reduce some of the risks.

e) The beta value for AUS is 1.5. Define beta and explain what this number means. Include in your answer two differences between the standard deviation and beta.

Reference no: EM132908198

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