a) Future Returns You are interested in the shares of Tesla. To evaluate its risk...
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Finance
a) Future Returns
You are interested in the shares of Tesla. To evaluate its risk and return, you produced a scenario analysis for the coming year:
Revenue Growth
Probability, p(s)
Share Price
HPR
Very high
0.1
$900
50%
High
0.2
$750
25%
Medium
0.6
$600
0%
Slow or no growth
0.1
$300
-50%
Current ABC LTD share price is $600; ABC LTD does not pay dividends; T-bill rate is 1%.
Fill in the holding period returns in the table. Then, compute the expected return, standard deviation, and the Sharpe ratio of ABC LTD.
Suppose investor sentiment for EV stocks suddenly drops. As a result, the risk premium on ABC increases to 25%. Assume future price projection for ABC stay the same. How much would ABCs current share price drop?
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