Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has...

Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has very little risk. You obtain the following forecasted returns data for West Coast Bank (WCB) for next year. Assume the possibility of different states of the economy is the same for the next year.

Recession ECB 40% WCB 40% Below average ECB -10% WCB 15% Average ECB 35% WCB -5% Above average ECB -5% WCB -10% Booming ECB 15% WCB 35%

a) Calculated the expected return and stand-alone risk for ECB and WCB respectively

b) Based on your calculation in part a), would you recommend your uncle to do a portfolio of ECB and WCB? Explain.

c)Assume that for now, the market return is 7% and the risk-free return is 2%. What is the beta of stock ECB and stock WCB respectively? Assume the two stocks are in equilibrium.

d) Please comment on your uncle's opinion that ECB has very little risk. Briefly state your reasons.

Expert Solution

Formula parts of the excel given below:

jeff jeffy answered 4 weeks ago

Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has...

Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has very little risk. You agree that the stock is relatively safe, but you want to demonstrate that his risk would be even lower if he were more diversified. You obtain the following returns data for West Coast Bank (WCB). Both banks have had less variability than most other stocks over the past 5 years. Year ECB WCB 2004 40.00%...

Campbell's father holds just one stock, East Coast Bank (ECB), which he thinks is a very...

Campbell's father holds just one stock, East Coast Bank (ECB), which he thinks is a very low-risk security. Campbell agrees that the stock is relatively safe, but he wants to demonstrate that his father's risk would be even lower if he were more diversified. Campbell obtained the following returns data shown for West Coast Bank (WCB). Both have had less variability than most other stocks over the past 5 years. Measured by the standard deviation of returns, by how much...

Campbell's father holds just one stock, East Coast Bank (ECB), which he thinks is a very...

Campbell's father holds just one stock, East Coast Bank (ECB), which he thinks is a very low-risk security. Campbell agrees that the stock is relatively safe, but he wants to demonstrate that his father's risk would be even lower if he were more diversified. Campbell obtained the following returns data shown for West Coast Bank (WCB). Both have had less variability than most other stocks over the past 5 years. Measured by the standard deviation of returns, by how much...

Campbell's father holds just one stock, East Coast Bank (ECB), which he thinks is a very...

Campbell's father holds just one stock, East Coast Bank (ECB), which he thinks is a very low-risk security. Campbell agrees that the stock is relatively safe, but he wants to demonstrate that his father's risk would be even lower if he were more diversified. Campbell obtained the following returns data shown for West Coast Bank (WCB). Both have had less variability than most other stocks over the past 5 years. Measured by the standard deviation of returns, by how much...

Assume that your cousin holds just one stock, Eastman Chemical Bonding (ECB), which he thinks has...

Assume that your cousin holds just one stock, Eastman Chemical Bonding (ECB), which he thinks has very little risk. You agree that the stock is relatively safe, but you want to demonstrate that his risk would be even lower if he were more diversified. You obtain the following returns data for Wilder's Creations and Buildings (WCB). Both companies have had less variability than most other stocks over the past 5 years. Using the standard deviation of returns, by how much...

Assume that your cousin holds just one stock, Eastman Chemical Bonding (ECB), which he thinks has...

Assume that your cousin holds just one stock, Eastman Chemical Bonding (ECB), which he thinks has very little risk. You agree that the stock is relatively safe, but you want to demonstrate that his risk would be even lower if he were more diversified. You obtain the following returns data for Wilder's Creations and Buildings (WCB). Both companies have had less variability than most other stocks over the past 5 years. Using the standard deviation of returns, by how much...

Campbell's father holds just one stock, G Co., which he thinks is a very low risk...

Campbell's father holds just one stock, G Co., which he thinks is a very low risk security. Campbell agrees that the stock is relatively safe, but he wants to demonstrate to his father that he could still reduce his risk by diversifying. He obtained the return shown below on G and E Corp. Both have had less variability than most other stocks over the past 5 years. Year G E Portfolio: 50% G and 50% E 2015 0.40 0.40 2016...

Your uncle has $300,000 today. Assume he can earn 9.18% on his investments. He now wants...

Your uncle has $300,000 today. Assume he can earn 9.18% on his investments. He now wants to retire in 10 years. Here is his situation: a. He wants to withdraw $35,000 every two years, beginning 12 years from today for 10 equal, every two-year (i.e. every other year) withdrawals. b. He has to pay for his daughter’s college beginning in 5 years at $20,000 for four years (i.e. he has to make a payment in year 5, 6, 7, and...

Your uncle from back east visits for Thanksgiving. He tells you about his proposal to prevent...

Your uncle from back east visits for Thanksgiving. He tells you about his proposal to prevent high prices for plowing snow from driveways after snowstorms. Private companies charge $300 for this service, a price he considers too high. He wants the city council to pass a law capping the price at $100. Using your recent learning in economics, draw the supply/demand diagram showing the situation before the law is passed. What does it look like? Then, how would your uncle's...

Twenty-one years later, the firm has 20 stores throughout 7 east coast states, of which 10...

Twenty-one years later, the firm has 20 stores throughout 7 east coast states, of which 10 are operated by the company and 10 by franchisees. Each store was built to the same specifications for both interior and exterior design. Locations were chosen in heavily African-American populated areas since their success depended greatly upon serving a target market of customers with the resources to purchase the firm’s art products. Inventory items were standardized into the three categories, and advertising focused on...

Question

Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has...

Solutions

Expert Solution

Related Solutions

Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has...

Campbell's father holds just one stock, East Coast Bank (ECB), which he thinks is a very...

Campbell's father holds just one stock, East Coast Bank (ECB), which he thinks is a very...

Campbell's father holds just one stock, East Coast Bank (ECB), which he thinks is a very...

Assume that your cousin holds just one stock, Eastman Chemical Bonding (ECB), which he thinks has...

Assume that your cousin holds just one stock, Eastman Chemical Bonding (ECB), which he thinks has...

Campbell's father holds just one stock, G Co., which he thinks is a very low risk...

Your uncle has $300,000 today. Assume he can earn 9.18% on his investments. He now wants...

Your uncle from back east visits for Thanksgiving. He tells you about his proposal to prevent...

Twenty-one years later, the firm has 20 stores throughout 7 east coast states, of which 10...