Question
In: Finance
Consider the following information: Rate of Return if State Occurs State of Economy Probability of...
| Consider the following information: |
| Rate of Return if State Occurs | ||||
| State of Economy | Probability of State of Economy |
Stock A | Stock B | Stock C |
| Boom | 0.76 | 0.23 | 0.21 | 0.31 |
| Bust | 0.24 | 0.09 | 0.15 | 0.07 |
|
a. What is the expected return on an equally weighted portfolio of these three stocks? |
|
b. What is the variance of a portfolio invested 10 percent each in A and B and 80 percent in C? |
Solutions
Expert Solution
Ans a) 21.48%
| Stock | Probability (i) | Stock A (ii) | Stock A Return (i)* (ii) | Stock B (iii) | Stock B Return (i)* (iii) | Stock C (iv) | Stock C Return (i)* (iv) |
| Boom | 76.00% | 23.00% | 17.48% | 21.00% | 15.96% | 31.00% | 23.56% |
| Bust | 24.00% | 9.00% | 2.16% | 15.00% | 3.60% | 7.00% | 1.68% |
| Total | 19.64% | Total | 19.56% | Total | 25.24% | ||
| Stock | Investment (i) | Return (ii) | Investment* Return (i)* (ii) | ||||
| A | 33.33% | 19.64% | 6.55% | ||||
| B | 33.33% | 19.56% | 6.52% | ||||
| C | 33.33% | 25.24% | 8.41% | ||||
| Total | 21.48% | ||||||
Ans b) 5.0899
| Stock | Probability (P) | RETURN (Y) | (P * Y ) | P * (Y -Average Return of Y)^2 |
| A | 10.00% | 19.64 | 1.96 | 2.00 |
| B | 10.00% | 19.56 | 1.96 | 2.07 |
| C | 80.00% | 25.24 | 20.19 | 1.02 |
| TOTAL | 24.11 | 5.09 | ||
| Expected Return = | (P * Y) | |||
| 24.11% | ||||
| VARIANCE = | P * (Y -Average Return of Y)^2 | |||
| 5.0899 |
jeff jeffy answered 3 years agoRelated Solutions
Consider the following information: Rate of Return If State Occurs State of Probability of Economy...
Consider the following information:
Rate of Return If State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Stock C
Boom
.75
.08
.17
.24
Bust
.25
.11
−
.05
−
.08
a.
What is the expected return on an equally weighted portfolio of
these three stocks? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places,
e.g., 32.16.)
b.
What is the variance of a portfolio...
Consider the following information: Rate of Return if State Occurs State of Economy Probability of...
Consider the following
information:
Rate of Return if State Occurs
State of Economy
Probability
of
State of Economy
Stock A
Stock B
Stock C
Boom
0.62
0.07
0.27
0.17
Bust
0.38
0.17
0.15
0.01
Requirement
1:
What is the expected return on an equally weighted portfolio of
these three stocks? (Do not round your intermediate
calculations.)
14.72% 17.22% 26.75% 29.52% 8.99%
Requirement
2:
What is the variance of a portfolio invested 30 percent each in
A and...
Consider the following information: Rate of Return If State Occurs State of Probability of Economy...
Consider the following information:
Rate of Return If State Occurs
State of Probability of
Economy State of Economy Stock A Stock B
Recession .22 .10 ? .17
Normal .52 .13 .12
Boom .26 .18 .29
Calculate the expected return for each stock. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 2 decimal places, e.g., 32.16.)
Expected return
Stock A %
Stock B %
Calculate the standard deviation for each stock. (Do...
Consider the following information: Rate of Return If State Occurs State of Probability of Economy...
Consider the following information:
Rate of Return If State Occurs
State of Probability of
Economy State of Economy Stock A Stock B Stock C
Boom .65 .11 .19 .37
Bust .35 .12 .06 ?.05
a.
What is the expected return on an equally weighted portfolio
of these three stocks? (Do not round intermediate calculations.
Enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
Expected return %
b.
What is the variance of a portfolio...
Consider the following information: Rate of Return if State Occurs State of Economy Probability of...
Consider the following information:
Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Recession
.20
.06
–.20
Normal
.70
.08
.15
Boom
.10
.13
.34
Calculate the expected return for Stock A.
Calculate the expected return for Stock B.
Calculate the standard deviation for Stock A.
Calculate the standard deviation for Stock B
Consider the following information: Rate of Return if State Occurs State of Economy Probability of...
Consider the following
information:
Rate of Return if State Occurs
State of Economy
Probability of
State of Economy
Stock A
Stock B
Recession
0.10
0.04
-0.21
Normal
0.60
0.09
0.13
Boom
0.30
0.15
0.32
Required:
(a)
Calculate the expected
return for Stock A. (Do not round your intermediate
calculations.)
(Click to
select)10.30%8.85%12.07%11.03%9.46%
(b)
Calculate the expected
return for Stock B. (Do not round your intermediate
calculations.)
(Click to
select)15.30%8.00%17.07%14.54%15.91%
(c)
Calculate the standard
deviation for Stock...
Consider the following information: Rate of Return If State Occurs State of Probability of Economy...
Consider the following information:
Rate of Return If State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Recession
.18
.07
−
.18
Normal
.55
.10
.11
Boom
.27
.15
.28
a.
Calculate the expected return for Stocks A and B. (Do
not round intermediate calculations and enter your answers as a
percent rounded to 2 decimal places, e.g., 32.16.)
b.
Calculate the standard deviation for Stocks A and B.
(Do not round intermediate...
Consider the following information: Rate of Return if State Occurs State of Economy Probability of...
Consider the following information:
Rate of Return if State Occurs
State of Economy
Probability of
State of Economy
Stock A
Stock B
Stock C
Boom
0.78
0.15
0.07
0.25
Bust
0.22
0.15
0.09
-0.01
Requirement 1:
What is the expected return on an equally weighted portfolio of
these three stocks? (Do not round your intermediate
calculations.)
(Click to select)13.91%16.41%25.94%28.71%8.18%
Requirement 2:
What is the variance of a portfolio invested 20 percent each in
A and B and...
Consider the following information: Rate of Return if State Occurs State of Economy Probability of...
Consider the following information:
Rate of Return if State Occurs
State of Economy
Probability of
State of Economy
Stock A
Stock B
Stock C
Boom
0.70
0.19
0.09
0.09
Bust
0.30
0.17
0.07
-0.01
a. What is the expected return on an equally
weighted portfolio of these three stocks?
b. What is the variance of a portfolio invested
20 percent each in A and B and 60 percent in C?
Consider the following information: Rate of Return if State Occurs State of Economy Probability of...
Consider the following information:
Rate of Return if State Occurs
State of Economy
Probability of
State of Economy
Stock A
Stock B
Stock C
Boom
0.64
0.21
0.25
0.25
Bust
0.36
0.07
0.11
0.01
Requirement 1:
What is the expected return on an equally weighted portfolio of
these three stocks? (Do not round your intermediate
calculations.)
A) 17.43%
B) 19.93%
C) 29.46%
D) 32.23%
E) 11.70%
Requirement 2:
What is the variance of a portfolio invested 30...
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