Question

In: Finance

Suppose you have invested only in two stocks, A and B. You expect that returns on...

Suppose you have invested only in two stocks, A and B. You expect that returns on the stocks depend on the following three states of economy, which are equally likely to happen.

Show work in four decimal places and equations

State of the Economy

Return on Stock A

Return on Stock B

Recession

3.0%

−6.0%

Normal

6.0%

6.0%

Boom

9.0%

27.0%

Q. 1. Calculate the expected return of each stock.

Q. 2. (a) Calculate the variance of each stock. (b) Which one is riskier according to your calculation? Why?

Q. 3. (a) Calculate the standard deviation of each stock. (b) Which one is riskier according to your calculation? Why?

Q. 4. (a) Calculate the coefficient of variation of each stock. (b) Which stock is riskier according to your calculation? Why?

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

You have a portfolio worth $100,000 consisting of two stocks, A and B. You invested $30,000...
You have a portfolio worth $100,000 consisting of two stocks, A and B. You invested $30,000 in stock A and the remainder in Stock B. Consider the following information: Type your answers in the appropriate section showing all steps of your work State of the Economy Probability Of State Return on A Return on B Growth 0.25 15% 8% Normal 0.50 5% 20% Recession 0.25 -10% 25%                 Expected return 3.75% ??                                               Standard deviation ??               6.26% a) What is the...
.   If you have $30,000 invested in each of two stocks and $20,000 invested in each...
.   If you have $30,000 invested in each of two stocks and $20,000 invested in each of another three stocks and the betas on the stocks above are 0.8, 1.1, 1.0, 1.2 and 1.4, respectively, what is the beta of your portfolio, and what is the required return on the portfolio if the risk-free rate is 4.6% and the return on the market portfolio is 10.4%? What are the risk premiums for the market and for your portfolio?
Suppose you have a portfolio that includes two stocks. You invested 60 percent of your total...
Suppose you have a portfolio that includes two stocks. You invested 60 percent of your total fund in a stock that has a Beta equal to 3.0 and the remaining 40 of your funds in a stock that has a Beta equal to 0.5. What is the Portfolio Beta? a)            Stock F has a Beta Coefficient equal to 2. If the Risk-Free Rate of Return equals 4 per- cent and the Expected Market Return equals 10 percent, what is stock...
2. Two stocks A and B have expected returns, and a variance-covariance matrix of returns given...
2. Two stocks A and B have expected returns, and a variance-covariance matrix of returns given in Table 1. Table 1 Stock A Stock B E(R) 0.14 0.08 Variance-covariance matrix: Stock A Stock B Stock A 0.04 0.012 Stock B 0.012 0.0225 a) What is the correlation coefficient between the returns on stock A and stock B? b) What is the expected return and standard deviation of portfolio S which is invested 80% in stock A and 20% in stock...
If you have 3 stocks (A), (B), & (C). The following are the rates of returns...
If you have 3 stocks (A), (B), & (C). The following are the rates of returns in the last 5 years for the three stocks: Stock A Stock B Stock C 30 60 20 20 35 30 40 20 40 25 25 35 35 20 40 Required Calculate the expected returns for individual stocks A, B & C. Calculate the expected risk for individual stocks A, B & C. Calculate the covariance and correlation between A&B stocks and A&C stocks...
If you have 3 stocks (A), (B), & (C). The following are the rates of returns...
If you have 3 stocks (A), (B), & (C). The following are the rates of returns in the last 5 years for the three stocks: Stock A Stock B Stock C 30 60 20 20 35 30 40 20 40 25 25 35 35 20 40 Required Calculate the expected returns for individual stocks A, B & C. Calculate the expected risk for individual stocks A, B & C. Calculate the covariance and correlation between A&B stocks and A&C stocks...
Suppose you have invested $100,000 in the following four stocks. Security Amount invested Beta Average Return...
Suppose you have invested $100,000 in the following four stocks. Security Amount invested Beta Average Return Stock A 20000 0.75 14 Stock B 25000 1.1 13 Stock C 30000 1.36 16 Stock D 25000 1.88 25 The risk-free rate is 5% and the expected market risk premium is 10%. Assume CAPM holds. Required:   i. Write the equation of the security market line (SML). (1 mark) ii. Calculate the expected returns of each of the stock and determine which of the...
What is the standard deviation of the returns on a portfolio that is invested in stocks...
What is the standard deviation of the returns on a portfolio that is invested in stocks A, B, and C? 20 percent of the portfolio is invested in stock A and 45 percent is invested in stock C. State of Economy Boom Normal Bust Probability of Returns if State Occurs State of Economy Stock A Stock B Stock C 20% 9% 3% 11% 55%4%5%8% 25% -2% 10% -13%   
Suppose Stocks A, B and C are the only three component stocks in a benchmark index....
Suppose Stocks A, B and C are the only three component stocks in a benchmark index. The number of shares outstanding of Stocks A, B and C are 371,000 shares, 312,000 shares, and 234,000 shares, respectively. The prices of Stocks A, B and C for Days 1, 2, 3 and 4 are given in the table below: Stock A Stock B Stock C Day 1 30.37 41.70 81.85 Day 2 31.03 40.61 78.65 Day 3 32.05 42.03 79.28 Day 4...
If you have $8,000 invested in each of two stocks whose expected rates of return are...
If you have $8,000 invested in each of two stocks whose expected rates of return are 9% and 11% respectively, $15,000 invested in a stock whose expected return is 10%, $20,000 invested in a stock whose return is 12%, and $10,000 invested in a stock whose return is 14%, what is the expected return on your portfolio?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT