Question
In: Accounting
Stocks X and Y have the following probability distributions of expected returns for four possible economic...
Stocks X and Y have the following probability distributions of expected returns for four possible economic states.
| Economy State | Probability | Stock X | Stock Y |
| 1 | 0.1 | -8% | 5% |
| 2 | 0.4 | -10% | 8% |
| 3 | 0.4 | 9% | -2% |
| 4 | 0.1 | 14% | -10% |
e. Calculate the two-stock portfolio’s standard deviation.
f. Calculate the two-stock portfolio’s beta.
g. If the overall market return is 8% and the risk-free rate is 1%, what is the two-stock portfolio’s required return?
h. How can you reallocate t
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Stocks X and Y have the following probability distributions of expected returns for four possible economic...
Stocks X and Y have the following probability distributions of
expected returns for four possible economic states.
Economy State
Probability
Stock X
Stock Y
1
0.1
-8%
5%
2
0.4
-10%
8%
3
0.4
9%
-2%
4
0.1
14%
-10%
Suppose you construct a two-stock portfolio that has $3 million
invested in Stock X and $1 million invested in Stock Y. The beta of
Stock X is 20% higher than the beta of overall stock market. Stock
Y’s beta is...
The probability distributions of possible returns for Stocks X and Y are as follows: Economic State ...
The probability distributions of possible returns for Stocks X
and Y are as follows:
Economic
State
Probability
X
Y
Recession
0.2
-15%
-5%
Normal
0.6
20%
15%
Boom
0.2
30%
25%
Calculate the expected return on each stock. Show your
calculations. (8 points)
Calculate the standard deviation for each stock. Show your
calculations. (10Points)
Which stock do you consider riskier? Explain. (2
Points)
In which stock would you prefer to invest? Explain. (2
Points)
Stocks X and Y have the following probability distributions of expected future returns: Probability X Y 0.3 &nb
Stocks X and Y have the following probability distributions of
expected future returns:
Probability X Y
0.3 2% 25%
0.4 12% 20%
0.3 20% 0%
One investor invests 40% in stock X and 60% in stock Y. Calculate
the expected return, standard deviation, and coefficient of
variation Stocks X and Y. Compute the expected rate of return for
the portfolio.
Stocks X and Y have the following probability distributions of expected future returns: Probability X Y 0.3 &nb
Stocks X and Y have the following probability distributions of
expected future returns:
Probability X Y
0.3 2% 25%
0.4 12% 20%
0.3 20% 0%
One investor invests 40% in stock X and 60% in stock Y. Calculate
the expected return, standard deviation, and coefficient of
variation Stocks X and Y. Compute the expected rate of return for
the portfolio.
You have estimated the following probability distributions of expected future returns for Stocks X and Y:...
You have estimated the following probability distributions of
expected future returns for Stocks X and Y:
Stock X
Stock Y
Probability
Return
Probability
Return
0.1
-12
%
0.2
4
%
0.2
11
0.2
7
0.2
18
0.3
10
0.2
25
0.1
18
0.3
45
0.2
19
What is the expected rate of return for Stock X? Stock Y? Round
your answers to one decimal place.
Stock X: %
Stock Y: %
What is the standard deviation of expected returns for Stock X?...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(8%)
(21%)
0.2
6
0
0.4
10
24
0.2
24
30
0.1
36
49
Calculate the expected rate of return, rB, for Stock
B (rA = 12.80%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 18.87%.) Do not round
intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
(14%)
(35%)
0.2
4
0
0.3
12
20
0.2
18
29
0.1
30
42
Calculate the expected rate of return, rB, for Stock
B (rA = 8.20%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 25.07%.) Do not round
intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
(11%)
(27%)
0.2
3
0
0.3
11
21
0.2
22
27
0.1
40
41
A.Calculate the expected rate of return, rB, for
Stock B (rA = 10.10%.) Do not round intermediate
calculations. Round your answer to two decimal places.
%
B.Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 22.00%.) Do not round
intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(14%)
(29%)
0.2
3
0
0.4
13
23
0.2
24
27
0.1
35
37
Calculate the expected rate of return, rB, for Stock
B (rA = 12.70%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 18.47%.) Do not round
intermediate calculations. Round your...
Expected returns Stocks A and B have the following probability distributions of expected future returns: Probability...
Expected returns
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
-10%
-39%
0.2
6
0
0.3
11
21
0.2
20
27
0.1
36
44
Calculate the expected rate of return, rB, for Stock
B (rA = 10.10%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 26.59%.) Do not round
intermediate calculations. Round your...
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