Question

In: Finance

Calculate the expected return based on the information in the table below State of economy Probability...

  1. Calculate the expected return based on the information in the table below

State of economy

Probability of state of economy

Rate of return if state occurs

Recession

.30

-.07

Normal

.60

.13

Boom

.10

.23

Solutions

Expert Solution

Expected return = (Probability of Recession * Returns at Recession) + (Probability of Normal * Returns at Normal) + (Probability of Boom * Returns at Boom)

Expected return = [0.30 * (-0.07)] + (0.60 * 0.13) + (0.10 * 0.23)

Expected return = 0.08 or 8%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Based on the following information:      State of   Economy Probability of State of Economy Return on...
Based on the following information:      State of   Economy Probability of State of Economy Return on Stock J Return on Stock K   Bear .30 −.015 .039   Normal .65 .143 .067   Bull .05 .223 .097    Calculate the expected return for each of the stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return   Stock J %   Stock K % Calculate the standard deviation for each of the stocks....
Answer the following question based on the information below: State of Economy Probability Stock A’s return...
Answer the following question based on the information below: State of Economy Probability Stock A’s return Stock B’s return Boom .4 15% - 30% Recession .6 5% 40% Which of the following statements is true? a) Stock A has higher expected return than stock B. b) The actual return of stock A will always be greater than that of stock B. c) Stock A has higher total risk than stock B. d) Stocks A and B are positively correlated.
Use the following information to find expected return for this portfolio. State of Economy Probability of...
Use the following information to find expected return for this portfolio. State of Economy Probability of State Returns if State Occurs Stock A Stock B Stock C Stock D Boom 40% -15% 16% 25% 20% Normal 30% 5% 10% -3% 2% Recession 30% 28% 6% -10% -5% Portfolio Weights 10% 20% 30% 40% ANSWERS: 11.20% 3.90% 8.19% 7.08% 7.30%
Use the following information to find expected return for this portfolio. State of Economy Probability of...
Use the following information to find expected return for this portfolio. State of Economy Probability of State Returns if State Occurs Stock A Stock B Stock C Stock D Boom 40% -15% 16% 25% 20% Normal 30% 5% 10% -3% 2% Recession 30% 28% 6% -10% -5% Portfolio Weights 10% 20% 30% 40% ANSWERS: 11.20% 3.90% 8.19% 7.08% 7.30%
state of the economy probability of occurrence expected return on stock A expected return on stock...
state of the economy probability of occurrence expected return on stock A expected return on stock B High growth 0.1 60% 5% Moderate growth 0.2 20% 20% No growth 0.5 10% 5% Recession 0.2 -25% 0% 1)Calculate the weighted average of the standard deviation of individual stocks A and B ; and show that each portfolio standard deviation is less than this weighted average except the portfolio standard deviation with correlation of 1. 2) Given correlation of -1, what portfolio...
Consider the following information: State of the Economy Probability of State of the Economy Return on...
Consider the following information: State of the Economy Probability of State of the Economy Return on A % Return on B % Boom 0.40 10 4 Growth 0.20 -4 0 Normal 0.20 24 16 Recession 0.20 16 20 a)         What is the expected return for A? For B?                                          b)         What is the standard deviation for A? For B?                                     c)         What is the expected return on a portfolio of A and B that is 30% invested in A and the remainder...
3) Consider information given in the following table. State of the Economy Probability Return of Stock...
3) Consider information given in the following table. State of the Economy Probability Return of Stock A Return of Stock B Recession 0.1 2% -5% Normal 0.3 10% 8% Boom 0.6 20% 25% a) Calculate the expected return, variance of each stock, and the covariance between the two stocks. b) If the weights of both stocks are 55% in A and 45% in B, respectively, what are the expected return and variance of the sum of these two stocks?
You are given the following information:      State of   Economy Probability of State of Economy Return...
You are given the following information:      State of   Economy Probability of State of Economy Return on Stock J Return on Stock K   Bear .20 −.030 .024   Normal .55 .128 .052   Bull .25 .208 .082    Calculate the expected return for each of the stocks. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)    Expected return   Stock J %   Stock K %    Calculate the standard deviation for each of...
Consider the following information: State of Economy Probability of State of Economy Rate of Return if...
Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .04 .097 .102 Normal .72 .114 .133 Boom .24 .156 .148 The market risk premium is 7.4 percent, and the risk-free rate is 3.1 percent. The beta of Stock A is ________ and the beta of Stock B is ________. a) 1.25; 1.41 b) 1.47; 1.76 c) 1.21; 1.76 d) 1.25; 1.89 e) 1.47; 1.41
State of Economy Probability of State of Economy Return of Stock A if State Occurs Return...
State of Economy Probability of State of Economy Return of Stock A if State Occurs Return of Stock B if State Occurs Recession 0.30 -0.20 0.10 Normal ? 0.30 0.20 Boom 0.15 0.40 0.30 What is the expected return for Stock A? What is the standard deviation for Stock A? Suppose you have $50,000 total. If you put $20,000 in Stock A and the remainder in Stock B, what are the portfolio returns in each state? Suppose you have $50,000...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT