Expected rate of return and required rate of return for Syracuse Tech Corporation.
As a security analyst, you are contemplating investing in Syracuse Tech Corporation. For your analysis, you have gathered the subsequent information regarding the probability distribution of returns for the T-bill as well as for Syracuse Tech:
|
GDP
|
Probability
|
T-bill
|
Syracuse tech
|
|
Low growth
|
0.2
|
4%
|
-25%
|
|
Average Growth
|
0.25
|
4
|
10
|
|
Moderate Growth
|
0.3
|
4
|
20
|
|
High Growth
|
0.25
|
4
|
30
|
In addition, the research department in your office has provided you with the subsequent information:
1) The standard deviation of returns for the S & P 500 Stock Index is 15%,
2) The correlation coefficient among Syracuse Tech Corporation and the market index is 0.9; and
3) The expected rate of return for the market index is 12%.
4) a. Illustrate what is the expected rate of return for Syracuse Tech Corporation?
b. Illustrate what is the standard deviation of returns for Syracuse Tech Corporation?
c. Based on your answers above and the data provided in the table, compute the required rate of return for Syracuse Tech Corporation?
d. An alternative to investing in Syracuse Tech Corporation, you also have the opportunity to buy a mutual fund which has the same characteristics as the S & P 500 Stock Index. Illustrate what would be your choice and why?