Question
In: Finance
Return and Risk: Consider the following scenario: Rate of Return Scenario Prob. Stocks Bonds Recession .20...
Return and Risk: Consider the following scenario: Rate of Return Scenario Prob. Stocks Bonds Recession .20 - 5% 14% Normal .60 15% 8% Boom .20 25% 4%___ 1. What is the expected return for each investment? Bonds: Stocks: Portfolio (40% in bonds, 60% in stocks):
2. What is the risk for each investment? Bonds: Stocks: Portfolio (40% in bonds, 60% in stocks):
3. Which investment do you prefer? A. Bonds B. Stocks C. Portfolio
4. Investors expect the market return this year to be 14%. A stock with a beta of .8 has an expected return of 12%. If the market return this year turns out to be 10%, what is your best guess as to the rate of return on the stock? Suppose that the S&P500 has an expected return of 15% and T - bills provide a risk - free rate of 5%.
5. How to construct a portfolio from these two assets with a n expected return of 12%? Weight for S&P500: Weight for T - bills: 6. How to construct a portfolio from these two assets with a beta of .4? Weight for S&P500: Weight for T - bills:
Please provide full solutions for each a problem, not just a final answer so I can fully understand this. Thank you :)
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -5...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.2
-5
%
17
%
Normal economy
0.6
18
11
Boom
0.2
24
4
Assume a portfolio with weights of 0.60 in stocks and 0.40 in
bonds.
a. What is the rate of return on the portfolio in each scenario?
(Enter your answer as a percent rounded to 1 decimal place.)
b. What are the expected rate of return and standard deviation
of the portfolio? (Do...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -7 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.2
-7
%
19
%
Normal economy
0.5
20
7
Boom
0.3
23
6
Assume a portfolio with weights of 0.60 in stocks and 0.40 in
bonds.
a. What is the rate of return on the portfolio
in each scenario?
Rate of Return
Recession_______%
Normal economy_______%
Boom______%
b. What are the expected rate of return and
standard deviation of the portfolio?
Expected return____%
Standard deviation_____%
c. Would...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.3 -5 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.3
-5
%
14
%
Normal economy
0.6
15
10
Boom
0.1
24
5
Assume a portfolio with weights of 0.60 in stocks and 0.40 in
bonds.
What is the rate of return on the portfolio in each scenario?
(Enter your answer as a percent rounded to 1 decimal
place.)
b. What are the expected rate of return and
standard deviation of the portfolio? (Do not round...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -5 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.2
-5
%
13
%
Normal economy
0.5
14
9
Boom
0.3
23
4
Assume a portfolio with weights of 0.60 in stocks and 0.40 in
bonds.
a.What is rate of return on the portfolio in each scenario?
(Enter your answer as a percent rounded to 1 decimal
place.)
Recession rate of return:?%
Normal Economy rate of return:?%
Boom rate of return:?%
b. What are the expected...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.3 -4 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.3
-4
%
12
%
Normal economy
0.4
13
7
Boom
0.3
22
3
Assume a portfolio with weights of 0.60 in stocks and 0.40 in
bonds.
a. What is the rate of return on the portfolio
in each scenario? (Enter your answer as a percent rounded
to 1 decimal place.)
Rate of Return
Recession
%
Normal economy
%
Boom
%
b. What are the expected rate...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.3 -4 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.3
-4
%
12
%
Normal economy
0.4
13
7
Boom
0.3
22
3
Assume a portfolio with weights of 0.60 in stocks and 0.40 in
bonds.
a. What is the rate of return on the portfolio
in each scenario? (Enter your answer as a percent rounded
to 1 decimal place.)
b. What are the expected rate of return and
standard deviation of the portfolio? (Do not...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 -5 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.20
-5
%
14
%
Normal economy
0.60
15
8
Boom
0.20
25
4
Assume a portfolio with weights of .60 in stocks and .40 in
bonds.
a. What is the rate of return on the portfolio
in each scenario? (Do not round intermediate
calculations. Enter your answer as a percent
rounded to 1 decimal place.)
b. What are the expected rate of return and
standard deviation...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 −9 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.20
−9
%
20
%
Normal economy
0.50
21
%
8
%
Boom
0.30
31
%
8
%
a. Is it reasonable to assume that Treasury
bonds will provide higher returns in recessions than in booms?
No
Yes
b. Calculate the expected rate of return and
standard deviation for each investment. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 1 decimal place.)...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 –5 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.20
–5
%
19
%
Normal
economy
0.60
20
10
Boom
0.20
27
4
a. Calculate the expected rate of return and
standard deviation for each investment. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 1 decimal place.)
Expected Rate of Return
Standard Deviation
Stocks
?%
?%
Bonds
?%
?%
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 –6 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.20
–6
%
18
%
Normal economy
0.50
19
11
Boom
0.30
26
8
a. Is it reasonable to assume that Treasury
bonds will provide higher returns in recessions than in booms?
No
Yes
b. Calculate the expected rate of return and
standard deviation for each investment. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 1 decimal place.)
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