Question
In: Finance
A stock will provide a rate of return of either −32% or 35%. a. If both...
| A stock will provide a rate of return of either −32% or 35%. |
| a. | If both possibilities are equally likely, calculate the stock's expected return and standard deviation. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) |
| Expected return | % |
| Standard deviation | % |
| b. |
If Treasury bills yield 1.5% and investors believe that the stock offers a satisfactory expected return, what must the market risk of the stock be? (Enter your answer as a whole percent.) |
| Market risk | % |
Solutions
jeff jeffy answered 8 months agoRelated Solutions
A stock will provide a rate of return of either −20% or 30%. If both possibilities...
A stock will provide a rate of return of either −20% or 30%.
If both possibilities are equally likely, calculate the stock's
expected return and standard deviation
Suppose the risk-free interest rate is 5%, and the stock market will return either be +21%...
Suppose the risk-free interest rate is 5%, and the stock
market will return either be +21% or −10% each year, with each
outcome equally likely. Compare the following two investment
strategies: (1) invest for one year in the risk-free investment,
and one year in the market, or (2) invest for both years in the
market.
a. Which strategy has the highest expected final payoff?
b. Which strategy has the highest standard deviation for the
final payoff?
c. Does holding stocks...
Suppose the risk-free interest rate is 5 %, and the stock market will return either plus...
Suppose the risk-free interest rate is 5 %, and the stock
market will return either plus 28 % or negative 17 % each year,
with each outcome equally likely. Compare the following two
investment strategies: (1) invest for one year in the risk-free
investment, and one year in the market, or (2) invest for both
years in the market.
a. Which strategy has the highest expected final payoff? (Two
possible outcomes)
b. Which strategy has the highest standard deviation for...
A stock currently sells for $32. A 6-month call option with a strike price of $35...
A stock currently sells for $32. A 6-month call option with a
strike price of $35 has a price of $2.27. Assuming a 4%
continuously compounded risk-free rate and a 6% continuous dividend
yield:
a)What is the price of the associated put option?
b)What are the arbitrage opportunities if the price of the put
option was $5?
c)What if this price was $6?
A stock currently sells for $32. A 6-month call option with a strike price of $35...
A stock currently sells for $32. A 6-month call option with a
strike price of $35 has a price of $2.27. The price of the put
option that satisfies the put-call-parity is $5.5229.Assuming a 4%
continuously compounded risk-free rate and a 6% continuous dividend
yield:
a) What are the arbitrage opportunities if the price of the call
option in question 5 was $2?
b)What if this price was $3?
24. Suppose that you have a stock with an average (expected) return of 32% and a...
24. Suppose that you have a stock with an average (expected)
return of 32% and a standard deviation of return of 16%. Please
answer the following question (show your work in your uploaded
document): What is the probability of getting a return less than
zero? (Round to 4 decimals, like .0000 or 00.00%)
Calculate annual arithmetic rate of return and annual geometric rate of return of stock A and...
Calculate annual arithmetic rate of return and annual geometric
rate of return of stock A and B. Consider the data in table below,
which show the movements in price for two stocks over two
successive holding periods. Both stocks have a beginning price of
$10. Stock A rises to $40 in period 1 and then declines to $30 in
period 2. Stock B falls to $8 in period 1 and then rises to $25 in
period 2.
The expected rate of return for Stock A is? The investment's standard deviation for stock A?...
The expected rate of return for Stock A is?
The investment's standard deviation for stock A?
COMMON STOCK A COMMON STOCK
B
PROBABILITY RETURN PROBABILITY
RETURN
0.20 11% 0.10 -4%
0.60 16% 0.40 7%
0.20 19% 0.40 14%
0.10 22%
The current price of a stock is $32, and the annual risk-free rate is 5%. A...
The current price of a stock is $32, and the annual risk-free
rate is 5%. A call option with a strike price of $29 and with 1
year until expiration has a current value of $6.40. What is the
value of a put option written on the stock with the same exercise
price and expiration date as the call option? Do not round
intermediate calculations. Round your answer to the nearest
cent.
BETA AND REQUIRED RATE OF RETURN a. A stock has a required return of 9%; the...
BETA AND REQUIRED RATE OF RETURN
a. A stock has a required return of 9%; the risk-free rate is
5%; and the market risk premium is 3%. What is the stock's beta?
Round your answer to two decimal places.
b. If the market risk premium increased to 10%, what would
happen to the stock's required rate of return? Assume that the
risk-free rate and the beta remain unchanged. If the stock's beta
is equal to 1.0, then the change in...
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