Question

In: Finance

There is a 28.10% probability of a below average economy and a 71.90% probability of an...

There is a 28.10% probability of a below average economy and a 71.90% probability of an average economy. If there is a below average economy stocks A and B will have returns of -7.40% and 18.50%, respectively. If there is an average economy stocks A and B will have returns of 11.50% and -0.80%, respectively. Compute the:

a) Expected Return for Stock A :

b) Expected Return for Stock B :

c) Standard Deviation for Stock A:

d) Standard Deviation for Stock B :

Expert Solution

Expected Return for stock A : [-7.40 * .2810 ] + [11.50 * .7190]

=- 2.0794+ 8.2685

= 6.1891%

Expected return for stock B: [18.50 *.2810]+ [ -.80*.7190]

= 5.1985- .5752

= 4.6233%

standard deviation for Stock A: square root [(X1-ER)^2*P1]+[(X2-ER)^2*P2]

=SR[(-7.4-6.1891)^2*.2810]+ [(11.5 - 6.1891)^2*.7190]

= SR [(-13.5891)^2*.2810]+[(5.3109)^2*.7190]

=SR [51.8905+ 20.2799]

=SR[ 72.1704]

= 8.50%

Standard deviation for stock B: SR[(18.50 - 4.6233 )^2*.2810] +[(-.80-4.6233)^2*.7190]

= SR[ (13.8767)^2*.2810]+[(-5.4233)^2*.7190]

= SR [54.1101+ 21.1474]

= SR [75.2575]

= 8.68%

jeff jeffy answered 2 years ago

Q1) There is a 33.70% probability of a below average economy and a 66.30% probability of...

Q1) There is a 33.70% probability of a below average economy and a 66.30% probability of an average economy. If there is a below average economy stocks A and B will have returns of 2.70% and 14.90%, respectively. If there is an average economy stocks A and B will have returns of 4.40% and -4.30%, respectively. Compute the: a) Expected Return for Stock A (0.75 points): b) Expected Return for Stock B (0.75 points): c) Standard Deviation for Stock A (0.75 points):...

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

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

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.

There is a 20 percent probability the economy will boom, 70 percent probability it will be...

There is a 20 percent probability the economy will boom, 70 percent probability it will be normal, and a 10 percent probability of a recession. Stock A will return 18 percent in a boom, 11 percent in a normal economy, and lose 10 percent in a recession. Stock B will return 9 percent in boom, 7 percent in a normal economy, and 4 percent in a recession. Stock C will return 6 percent in a boom, 9 percent in a...

There is a 20 percent probability the economy will boom; a 20 percent probability of a...

There is a 20 percent probability the economy will boom; a 20 percent probability of a recesion and otherwise, it will be normal. The Smith Company stock is expected to return 12 percent in a boom, 8 percent in a normal economy and -3 percent in a recession. The Johnson Company stock is expected to return 15 percent in a boom, 4 percent in a normal economy and -3 percent otherwise. What is the standard deviation of a portfolio that...

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...

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....

Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A...

Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession .25 .03 −.15 Normal .55 .13 .13 Boom .20 .16 .33 a. Calculate the expected return for the two stocks. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. Calculate the standard deviation for the two stocks. (Do not round your intermediate calculations. Enter your answers as a percent rounded to 2 decimal...

Rate of return if state occurs State of economy Probability of state of economy Stock A...

Rate of return if state occurs State of economy Probability of state of economy Stock A Stock B Stock C Boom 0.3 0.35 0.45 0.38 Good 0.3 0.15 0.20 0.12 Poor 0.3 0.05 –0.10 –0.05 Bust 0.1 0.00 –0.30 –0.10 5. Consider the following information on three stocks in four possible future states of the economy: Your portfolio is invested 30% in A, 50% in B, and 20% in C. What is the expected return of your portfolio? What...

Consider the following information: State of the economy Probability of the Economy Stock A Stock B...

Consider the following information: State of the economy Probability of the Economy Stock A Stock B St ock C Boom 0.25 0.35 0.45 0.25 Normal 0.50 0.20 0.25 0.15 POOR 0.25 -0.10 -0.15 -0.10 a. Calculate the Expected returns of the stocks individually. b. Now, you have the expected values of the stocks, assume that, Your portfolio is invested 30% each in stock A and stock B. What is the return of the portfolio?