Quant doubt from schweser tests 149, afternoon, practice, question, standard

badonkus

From volume 2 practice exams of schweser:
in that Exam 2 afternoon session question no: 145 about one standard deviation range,
149 about probability function.
can anyone explain them???

thommo77

drake,cfa, follows tcom corporation, a provider of communication products to commercial customers.
tcom is considering a marjor capital spending program. However, a capital spending increase means a lower sock price in the short run.
Drake believes the probability that tcom will increase capital spending is 60%, with a likely stock price drop of 10% over the short run.
If tcom does not increase capital spending, drake estimates that tcom’s stock will increase 15%. tcoms stock currently trades at 25$ per share. calculate a one standard deviation range of tcoms stock in the short run.
A. between 23$ and 27$ per share
B. between 24$ and 29$ per share
C. between 22$ and 28$ per share

luda002

First you calculate the value of the stock, which is 60%x(25*0,90) + 40%x(25*1,15) which givesm you 25. Then u calculate the standard deviation which is sqrt(0,6*exp(2522,5) + 0,4*exp(28,7525)) = 3,06. 25+3 = 28, 253 = 22 so the correct answer is C