Question
In: Finance
The price of Stock A today is 50, and stock B is 100. The probability of...
The price of Stock A today is 50, and stock B is 100. The
probability of a booming, normal, and recessionary economy are 0.2,
0.7, and 0.1 respectively. If the economy is booming, stock’s A
price will be 65 and stock B will be 108. If the economy is normal,
stock’s A price will be 55 and stock’s B will be 105. If the econ
falls into recession, stock’s A price will be 40 and stock’s B will
be 102.
a) Calculate the expected return and standard deviation for each
stock.
b) Assume you create a portfolio and put 50% of you money in stock
A and 50% of you money in stock B. Calculate the portfolio expected
return and standard deviation.
Please show formula and steps
Solutions
jeff jeffy answered 5 months agoRelated Solutions
Price Today, A Price Today, B State Tomorrow Probability Price Tomorrow, A Price Tomorrow, B 30...
Price Today, A
Price Today, B
State Tomorrow
Probability
Price Tomorrow, A
Price Tomorrow, B
30
20
Good
0.5
60
40
Bad
0.5
15
5
1a). Given the following information, calculate the
correlation coefficient between the returns on
stocks A and B
a. 0
b. 0.25
c. 0.5
d. 0.75
e. 1
1b). Calculate expected return and standard deviation of
the portfolio that is allocated 40% to A, 60% to B.
Stock `Shares (N) Price (P) A 100 K $50 B 200 K $30 C 500 K...
Stock
`Shares (N)
Price (P)
A
100 K
$50
B
200 K
$30
C
500 K
$10
If you replace Stock B with 200,000 shares of Stock D at $20
and 100,000 shares of Stock E at $10, what is the portfolio
turnover rate?
If you replace Stock B with 200,000 shares of Stock D at $10
and 100,000 shares of Stock E at $40, what is the portfolio
turnover rate?
Stock price today at $100. A binary PUT with strike of 85 is priced at $0.15....
Stock price today at $100. A binary PUT with strike of 85 is
priced at $0.15. What is the implied standard deviation?
A stock price is currently $50. A stock price is currently $50. Over each of the...
A stock price is currently $50. A stock price is currently $50.
Over each of the next two three-month periods it is expected to go
up by 6% or down by 5%. The risk-free interest rate is 5% per annum
with continuous compounding. Use two-period binomial models to
value the six-month options on this stock. Remember to show
detailed calculations of the option value at each node.
(a) What is the value of a six-month European call option with a...
A stock price is currently $50. A stock price is currently $50. Over each of the...
A stock price is currently $50. A stock price is currently $50.
Over each of the next two three-month periods it is expected to go
up by 6% or down by 5%. The risk-free interest rate is 5% per annum
with continuous compounding. Use two-period binomial models to
value the six-month options on this stock. Remember to show
detailed calculations of the option value at each node.
(a) What is the value of a six-month European call option with a...
Scenario Probability Return on stock A Return on stock B Boom 50% 20% 2% Normal 25%...
Scenario
Probability
Return on stock A
Return on stock B
Boom
50%
20%
2%
Normal
25%
15%
6%
Recession
25%
10%
12%
a) If you invest 70% of your funds into
stock A and 30% into stock B, what is the expected return of
your portfolio in each state of the economy?
b) Use your knowledge of risk and return
to explain why the portfolio is more heavily invested in Asset A
(70%) than Asset B (30%).
c) What is the overall expected...
Suppose stock X has a price of $100 today. There are threepossible scenarios one year...
Suppose stock X has a price of $100 today. There are three
possible scenarios one year later as detailed below. Let R denote
the one-year return of stock X (today to one year later).Scenario 1 Probability 20%, Stock price $80,
Dividend $0Scenario 2 Probability 50%, Stock price $105,
Dividend $5Scenario 3 Probability 30%, Stock price $140,
Dividend $5Calculate: (a) R in each of these three scenarios, and(b) The volatility of R.
Probability Stock A Stock B &n
Probability Stock
A Stock
B Stock
C
.30 9% 35% 3%
.30 15% 28% 9%
.40 7% 21% 15%
6) Find the expected return of the portfolio with 50% invested
in stock A and 50% invested in stock B. (Round your answer to 2
decimal places)
7) Find the expected return of the portfolio with 40% invested
in stock A, 20% invested in stock B, and 40% invested in stock C.
(Round your answer to 2 decimal Places)
8) Find the portfolio 1 Variance (answer 1) and standard Deviation
(answer 2). (round...
Mr. Suphi buys 100 shares of ABC stock on margin. The share price is $50 and...
Mr. Suphi buys 100 shares of ABC stock on margin. The share
price is $50 and the initial margin is 50%. What is the maintenance
margin on the account if the margin call is triggered at a share
price of $35? Ignore the interest on the loan.
b) Mr. Suphi buys 200 shares of EFG stock on margin. The share
price is $60 and the initial margin is 50%. What is Mr. Suphi’s
rate of return on equity if he...
If you buy 100 shares of a $50 stock on 40% margin, at what price would...
If
you buy 100 shares of a $50 stock on 40% margin, at what price
would your equity equal half of your market value?
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