Question
In: Finance
1.Returns and Standard Deviations Consider the following information: State of Economy Probability of State of Economy...
1.Returns and Standard Deviations Consider the following information:
|
State of Economy |
Probability of State of Economy |
Rate of Return If State Occurs |
||
|
Stock A |
Stock B |
Stock C |
||
|
Boom |
.10 |
.35 |
.45 |
.27 |
|
Good |
.60 |
.16 |
.10 |
.08 |
|
Poor |
.25 |
?.01 |
?.06 |
?.04 |
|
Bust |
.05 |
?.12 |
?.20 |
?.09 |
Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio?
What is the variance of this portfolio? The standard deviation?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
) Consider the following situation: State of Economy Probability of State of Economy Returns if State...
) Consider the following situation:
State of Economy
Probability of State of Economy
Returns if State Occurs
Stock A
Stock B
Stock C
Boom
20%
25%
10%
5%
Recession
80%
-30%
5%
10%
The expected return on the market
portfolio is 7% and the US Treasury bill yields 3%. The capital
market is currently in equilibrium.
(5 points) Which stock has the most systematic risk? Provide
all the steps and equations.
(5 points) Which stock has the most unsystematic risk?...
Consider the following situation: State of Economy Probability of State of Economy Returns if State Occurs...
Consider the following situation:
State of Economy
Probability of State of Economy
Returns if State Occurs
Stock A
Stock B
Stock C
Boom
20%
25%
10%
5%
Recession
80%
-30%
5%
10%
The expected return on the market
portfolio is 7% and the US Treasury bill yields 3%. The capital
market is currently in equilibrium.
Show your work. Do not use excel.
(5 points) Which stock has the most systematic risk? Provide
all the steps and equations.
(5 points) Which...
Consider the following situation: State of Economy Probability of State of Economy Returns if State Occurs...
Consider the following situation:
State of Economy
Probability of State of Economy
Returns if State Occurs
Stock A
Stock B
Stock C
Boom
20%
25%
10%
5%
Recession
80%
-30%
5%
10%
The expected return on the market
portfolio is 7% and the US Treasury bill yields 3%. The capital
market is currently in equilibrium.
Which stock has the most systematic risk? Provide all the steps
and equations.
Which stock has the most unsystematic risk? Explain why.
Provide all the...
Consider the following situation: State of Economy Probability of State of Economy Returns if State Occurs...
Consider the following situation:
State of Economy
Probability of State of Economy
Returns if State Occurs
Stock A
Stock B
Stock C
Boom
20%
25%
10%
5%
Recession
80%
-30%
5%
10%
The expected return on the market
portfolio is 7% and the US Treasury bill yields 3%. The capital
market is currently in equilibrium.
(5 points) Which stock has the most systematic risk? Provide
all the steps and equations.
(5 points) Which stock has the most unsystematic risk? Explain...
Consider the following situation: State of Economy Probability of State of Economy Returns if State Occurs...
Consider the following situation: State of Economy Probability
of State of Economy Returns if State Occurs Stock A Stock B Stock C
Boom 20% 25% 10% 5% Recession 80% -30% 5% 10% The expected return
on the market portfolio is 7% and the US Treasury bill yields 3%.
The capital market is currently in equilibrium.
(a) (5 points) Which stock has the most systematic risk? Provide
all the steps and equations.
(b) (5 points) Which stock has the most unsystematic...
P13-7 Calculating Returns and Standard Deviations [LO1] Consider the following information Rate of Return if State...
P13-7 Calculating Returns and Standard Deviations [LO1]
Consider the following information
Rate of Return if State Occurs
State of
Economy
Probability of
State of Economy
Stock A
Stock B
Recession
0.20
0.04
-0.19
Normal
0.70
0.08
0.14
Boom
0.10
0.13
0.33
Required:
(a)
Calculate the expected return for Stock A. (Do not round
your intermediate calculations.)
(Click to select)7.70% 7.85%
9.34% 10.03% 6.76%
(b)
Calculate the expected return for Stock B. (Do not round
your intermediate calculations.)
(Click...
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...
Portfolio returns and deviations. Consider the following information on a portfolio of three stocks: State of...
Portfolio returns and deviations. Consider the following
information on a portfolio of three stocks:
State of
Probability
of
Stock A Rate of return Stock B
ROR Stock C ROR
Economy
State of Economy
Boom
.15
.02
.32
.60
Normal
.60
.10
.12
.20
Bust
.25
.16
-.11
-.35
a. If your portfolio is invested 40 percent each in A and B and
20 percent in C, what is the portfolio's expected return? the
variance? the standard deviation?
b. if...
Consider the following information on 3 stocks. State of the economy Probability of state of economy...
Consider the following information on 3 stocks.
State of the economy
Probability of state of economy
Return of stock A
Return of Stock B
Return of Stock C
Recession
0.20
.24
.36
.55
Normal
0.55
.17
.13
.09
Boom
0.25
0
-.28
-.45
If your portfolio is invested 40% in A , 40% in B and 20% in C.
What is the portfolio expected return?
What is the portfolio standard deviation?
If the expected t-bill rate is 3.8%, what is...
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
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