Question
In: Finance
We know the following expected returns for stocks A and B, given different states of the...
We know the following expected returns for stocks A and B, given different states of the economy:
| State (s) | Probability | E(rA,s) | E(rB,s) |
| Recession | 0.3 | -0.01 | 0.04 |
| Normal | 0.5 | 0.14 | 0.07 |
| Expansion | 0.2 | 0.22 | 0.11 |
Note: If you can, it is much faster to solve these problems in a spreadsheet. However, the answer cannot be had simply by using the built-in AVERAGE() or STDEV() functions. If you are somewhat familiar with Excel, you might look into the SUMPRODUCT() function which is widely used to calculate weighted sums.
A: What is the expected return for stock A? 3+ Decimals
B: What is the expected return for stock B? 3+ Decimals
C:What is the standard deviation of returns for stock A? 3+ Decimals
D: What is the standard deviation of returns for stock B? 4+3+ Decimals
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Intro We know the following expected returns for stocks A and B, given different states of...
Intro
We know the following
expected returns for stocks A and B, given different states of the
economy:
State (s)
Probability
E(rA,s)
E(rB,s)
Recession
0.2
-0.03
0.02
Normal
0.5
0.12
0.05
Expansion
0.3
0.2
0.09
The expected return on
the market portfolio is 0.09 and the risk-free rate is 0.02.
Attempt 3/10 for 8 pts.
Part 1
What is the standard
deviation of returns for stock A?
Stocks A and B have the following returns in each of the states given below. Good...
Stocks A and B have the following returns in each of the states
given below.
Good
Bad
Ugly
Stock A return
25%
10%
-25%
Stock B return
1%
-5%
35%
The probability of the good state is 0.5, the probability of the
bad state is 0.3 and the probability of the ugly state is 0.2. What
is the covariance between the returns of A and B? (Hint: The
expected return of A is 10.5% and the expected return of B...
If we have a portfolio of multiple stocks with given expected returns and variances, do we...
If we have a portfolio of multiple stocks with given expected
returns and variances, do we prefer to hold stocks with higher or
lower correlations? Explain your answer for full credit.
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...
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
(10%)
(35%)
0.2
3
0
0.3
11
19
0.3
19
27
0.1
32
47
Calculate the expected rate of return, rB, for Stock
B (rA = 11.80%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 21.10%.) 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
(7%)
(26%)
0.2
5
0
0.3
10
24
0.3
22
28
0.1
33
40
Calculate the expected rate of return, rB, for Stock
B (rA = 13.20%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 18.62%.) Do not round
intermediate calculations. Round your...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- A)Given a generic array with ‘n’ items (not only integers). Give a solution for checking whether...
- Explain virtualization as a key technology in cloud computing environments, as well as the purpose of...
- A system is set up to take raw grading information from the console and calculate a...
- I have an 8 by 8 array that has values ranging from 1-64. I am wanting...
- The background information and instruction of the question is provided below, and i only asked for...
- Which business or industry sectors have the most startups companies that consider a small and medium...
- 16. Cost of trade credit Firms usually offer their customers some form of trade credit. This...
ADVERTISEMENT