Suppose we have the following projections on 3 stocks: You have 2 alternatives: Invest equal amounts...

Suppose we have the following projections on 3 stocks:

You have 2 alternatives:

Invest equal amounts in all 3
Invest 50% in Stock A and equal amounts in the other 2

State of the Economy	Probability of State	Return on Stock A	Return on Stock B	Return on Stock C
Boom	40%	10%	15%	20%
Bust	60%	8%	4%	0%

Which of the following is most accurate?

A) Choose Alternative 1 because it has more of Stock C which can yield 20%.

B)Choose Alternative 2 because the expected portfolio return is higher

C) Choose Alternative 1 because its expected portfolio return is higher

D) They are both the same

E) Choose Alternative 2 because it has less of Stock C which provides a 0% return in bad times.

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Suppose we have the following projections for three stocks. What is the expected return on stock...

Suppose we have the following projections for three stocks. What is the expected return on stock B? What is the standard deviation of returns on stock B? State of Economy Probability of State of Economy Returns if State Occurs Stock A Stock B Stock C Boom 0.4 10% 15% 20% Bust 0.6 8% 5% 0%

You are planning to invest 3 million euros for one year, and you have two alternatives:...

You are planning to invest 3 million euros for one year, and you have two alternatives: a US asset with interest rate 1.9%, and a French asset with interest rate 0.9%. Note also that today’s euro nominal exchange rate per $ equals 0.920. a) If you expect annual depreciation of the euro by 4%, what will be your choice? b) Which expected nominal exchange rate will make you indifferent between the two alternatives? B. The economic report for a Eurozone...

If a portfolio holds three stocks in equal amounts, and the betas of the three stocks...

If a portfolio holds three stocks in equal amounts, and the betas of the three stocks are 0, 0.5, and 1.1, what is the beta of the portfolio?

Your portfolio allocates equal amounts to three stocks. All three stocks have the same mean annual...

Your portfolio allocates equal amounts to three stocks. All three stocks have the same mean annual return of 13 percent. Annual return standard deviations for these three stocks are 30 percent, 40 percent, and 50 percent. The return correlations among all three stocks are zero. What is the smallest expected loss for your portfolio in the coming year with a probability of 2.5 percent? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your...

2) At end of Day 1, I invest equal amounts of money in shares of company...

2) At end of Day 1, I invest equal amounts of money in shares of company A and B. By end of Day 2, the price of company A shares has doubled and the price of company B shares has halved (compared to Day 1 price). What is the return on my entire investment from Day 1 to Day 2 ? What are the weights of my portfolio at the end of Day 2 ? At the end of Day...

suppose you have two different quantities of brass and aluminum. When you add equal amounts of...

suppose you have two different quantities of brass and aluminum. When you add equal amounts of heat, you noticed that the brass temperature has increased by 10 degrees C and the temperature of the aluminum has increased by 15 degrees C. which metal has the greater mass, and how many times greater?

Question 1: You invest in a portfolio of 5 stocks with an equal investment in each...

Question 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%. A. Compute the beta of the portfolio. B. Compute the required return of the portfolio. Question 2: You are given the following probability distribution for a stock: Probability Outcome .5 -6% .5 18%

You have $5,000 to invest for the next year and are considering three alternatives a) A...

You have $5,000 to invest for the next year and are considering three alternatives a) A money market fund with an average maturity of 30 days offering a current annualized yield of 3%. b) A two-year CD at a bank offering an interest rate of 4.5% c) A 20-year U.S. Treasury bond offering a yield to maturity of 6% per year. What role does your forecast of future interest rates play in your decision?

Problem 12-8 Risk Premiums [LO2, 3] Suppose we have the following returns for large-company stocks and...

Problem 12-8 Risk Premiums [LO2, 3] Suppose we have the following returns for large-company stocks and Treasury bills over a six year period: Year Large Company US Treasury Bill 1 4.00 4.62 2 14.49 4.96 3 19.33 3.88 4 –14.35 7.00 5 –31.84 5.38 6 37.04 6.43 a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Average...

You are an engineering and you have 2 alternatives with the following cash flow. if MARR...

You are an engineering and you have 2 alternatives with the following cash flow. if MARR is 5% , which alternative you will select A or B . Hint Assume PW cost = PW benefits Year A B Differences between A snd B 0 -2000 -2800 ? 1 +800 +1100 ? 2 +800 +1100 ? 3 +800 +1100 ?

Subjects