Question
In: Finance
There are three economy situations and two stocks. Information is as follows. Economy Stock A Stock...
There are three economy situations and two stocks. Information is as follows.
|
Economy |
Stock A |
Stock B |
|
|
Booming |
0.3 |
10% |
20% |
|
Neutral |
0.3 |
5% |
0% |
|
Recession |
0.4 |
0% |
-10% |
a. What are the expected returns for both stock A and B, respectively?
b. What is the standard deviation/ risk for stock A?
c. What is the portfolio return given that you have $10,000 and allocate $4,000 in stock A?
Solutions
Expert Solution
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
jeff jeffy answered 3 years agoRelated Solutions
"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%,...
"The characteristics of two stocks traded in the economy are as
follows: Stock A, expected return=13%, standard deviation=60%;
Stock B, expected return=8%, standard deviation=40%. Correlation
between A and B is -1. If the market risk premium is 4%, what is
the expected return for a portfolio with a beta of 1.5 in a CAPM
universe?"
16%
15%
14%
None of the above
"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%,...
"The characteristics of two stocks traded in the economy are as
follows: Stock A, expected return=13%, standard deviation=60%;
Stock B, expected return=8%, standard deviation=40%. Correlation
between A and B is -1. If the market risk premium is 4%, what is
the expected return for a portfolio with a beta of 3 in a CAPM
universe?"
15%
18%
22%
None of the above
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...
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 a portfolio of three stocks: State of Probability of Stock A...
Consider the following information on a portfolio of three
stocks:
State of
Probability of
Stock A
Stock B
Stock C
Economy
State of Economy
Rate of Return
Rate of Return
Rate of Return
Boom
.12
.09
.34
.53
Normal
.53
.17
.19
.27
Bust
.35
.18
−
.18
−
.37
a. If your portfolio is invested 36 percent
each in A and B and 28 percent in C, what is the portfolio’s
expected return, the variance, and the standard deviation?...
Consider information regarding the following two stocks. The probability of each state of the economy is...
Consider information regarding the following two stocks. The
probability of each state of the economy is 1/3. No dividends are
paid.
STOCK. Initial Price. Boom. Normal Bust
A. 40 60 50 25
B. 25 20 25 35
(a) What is the expected value and the standard deviation of the
rate of return of each stock?
(b) Which stock is the better investment for you? Why?
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...
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...
You are given the following information about the stocks in a two-stock portfolio:
You are given the following information about the stocks in a two-stock portfolio:
Stock
Return
Portfolio Weight
Standard Deviation
The Blue Hotel, Inc.
22%
45%
9%
Joys Food, Inc.
25%
55%
11%
Correlation coefficient between the two stocks is 0.5.
Using the information above, calculate the following:
The expected return of the portfolio,
The variance of the portfolio,
The standard deviation of the portfolio.
（All calculations must be shown for intermediate calculations）
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