Question
In: Finance
1. Consider the following information on three stocks in four possible future states of the economy:  
1. Consider the following information on three stocks in four possible future states of the economy: (6 marks total)
|
Rate of return if state occurs |
||||
|
State of economy |
Probability of state of economy |
Stock A |
Stock B |
Stock C |
|
Boom |
0.4 |
0.35 |
0.45 |
0.38 |
|
Good |
0.3 |
0.15 |
0.20 |
0.12 |
|
Poor |
0.2 |
0.05 |
-0.10 |
-0.05 |
|
Bust |
0.1 |
0.00 |
-0.30 |
-0.10 |
a. Your portfolio is invested 50% in A, 20% in B, and 30% in C. What is the expected return of your portfolio?
b. What is the variance of this portfolio?
c. What is the standard deviation of this portfolio? (1 mark)
Solutions
jeff jeffy answered 8 months agoRelated Solutions
Consider the following information on three stocks: State of Economy Probability of State of Economy Rate...
Consider the following information on three stocks:
State of
Economy
Probability of
State of Economy
Rate of Return
if State Occurs
Stock A
Stock B
Stock C
Boom
.25
.27
.15
.11
Normal
.65
.14
.11
.09
Bust
.10
−.19
−.04
.05
A portfolio is invested 45 percent each in Stock A and Stock B
and 10 percent in Stock C. What is the expected risk premium on the
portfolio if the expected T-bill rate is 4.1 percent?
A.
8.71...
4. Assume there are three possible future states for the economy (Boom, Stagnant, and Recession) with...
4. Assume there are three possible future states for the economy
(Boom, Stagnant, and Recession) with associated probabilities of
20%, 45%, nd 35%. For each future stae of the economy, a security
pays either $40.00 or $20.00 with equal probability (i.e., a 50%
chance of either payoff occuring).
a. What is the expected future cash flow for any given future
state of the economy?
b. What is the expected future cash flow for the security?
c. Further assuming the future...
consider the following information about three stocks: state of economy. probability of state of &
consider the following information about three
stocks:
state of economy. probability of state
of
economy
boom.
0.20
normal.
0.55
bust.
0.25
rate of return if state occurs
stock
A.
Stock
B.
stock C
0.38.
0.50.
0.50
0.16.
0.14.
0.12
0.00.
-0.30.
-0.50
a-1. if your portfolio is invested 30%each in A and B
and 40% in C, what is the portfolio expected return?
a-2. what is the variance?
a-3. what is the standard deviation?
b. if the expected T-bill...
Consider the following information on a portfolio of three stocks: State of Economy Probability of State...
Consider the
following information on a portfolio of three stocks:
State of
Economy
Probability
of
State of Economy
Stock A
Rate of Return
Stock B
Rate of Return
Stock C
Rate of Return
Boom
.15
.04
.33
.55
Normal
.60
.09
.13
.19
Bust
.25
.15
–.14
–.28
a.
If your portfolio is invested 40 percent each in A and B and 20
percent in C, what is the portfolio’s expected return? The
variance? The standard deviation? (Do not...
Consider the following information on three stocks: Rate of Return If State Occurs State of Economy...
Consider the following information on three stocks:
Rate of Return If State Occurs
State of Economy
Probability of State
of Economy
Stock A
Stock B
Stock C
Boom
.25
.35
.40
.52
Normal
.50
.17
.15
.13
Bust
.25
.01
?.32
?.40
a-1 If your portfolio is invested 35 percent each
in A and B and 30 percent in C, what is the portfolio expected
return? (Do not round intermediate calculations. Enter your
answer as a percent rounded to 2...
Consider the following information on a portfolio of three stocks: &
Consider the following information on a portfolio of three
stocks:
Rate of Return
State of
Economy
Probability of
State Occurring
Stock A
(%)
Stock B
(%)
Stock C
(%)
Boom
.15
7
15
28
Normal
.70
9
12
17
Bust
.15
10
2
−35
The portfolio is invested 40 percent in each of Stock A and
Stock B and the rest in Stock C.
Which of the three stocks has the lowest risk? Why?
What is the expected return...
Consider the following information on a portfolio of three stocks: &
Consider the following information on a portfolio of three
stocks:
Rate of Return
State of
Economy
Probability of
State Occurring
Stock A
(%)
Stock B
(%)
Stock C
(%)
Boom
.05
7
15
28
Normal
.80
9
12
17
Bust
.15
10
2
−35
The portfolio is invested 40 percent in each of Stock A and
Stock B and the rest in Stock C.
Which of the three stocks has the lowest risk? Why?
What is the expected return...
Consider the following information on 3 stocks. State of the economy Probability of state of economy...
Consider the following information on 3 stocks.
State of the economy
Probability of state of economy
Return of stock A
Return of Stock B
Return of Stock C
Recession
0.20
.24
.36
.55
Normal
0.55
.17
.13
.09
Boom
0.25
0
-.28
-.45
If your portfolio is invested 40% in A , 40% in B and 20% in C.
What is the portfolio expected return?
What is the portfolio standard deviation?
If the expected t-bill rate is 3.8%, what is...
Consider the following information for three stocks, Stocks A, B, and C. The returns on the...
Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
7.94
16
0.7
B
9.62
16
1.1
C
11.72
16
1.6
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5%, and the market is...
Consider the following information for Stocks A, B, and C. The returns on the three stocks...
Consider the following information for Stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (that is, each of the correlation
coefficients is between 0 and 1).
Stock Expected Return Standard Deviation Beta
A 9.55% 15.00% 0.9
B 10.45% 15.00% 1.1
C 12.70% 15.00% 1.6
Fund P has one-third of its funds invested in each of the
three stocks. The risk-free rate is 5.5%, and the market is in
equilibrium....
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