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In: Finance
Question 3 (25 marks) Consider the following information: (Rate of Return) (Rate of Return) State of...
Question 3
Consider the following information:
| (Rate of Return) | (Rate of Return) | ||
| State of Economy | Probability | Stock A | Stock B |
| Recession | 0.30 | 2% | 5% |
| Normal | 0.50 | 7% | 4% |
| Boom | 0.20 | 12% | 3% |
Required:
a,) Calculate the expected return for the two Stocks A and B respectively.
b.) Calculate the standard deviation for the two Stocks A and B respectively.
c,) If you own a portfolio that has $1.3 million invested in Stock A and $2.2 million
invested in Stock B. Calculate the expected return and standard deviation for the
portfolio.
d.) Compute the portfolio standard deviation using the weighted average of individual
asset's standard deviation for the portfolio as mentioned in part (c) above.
e.) Comment and explain the different results obtained in parts (c) and (d) above
critically [within 200 words].
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Question 3 (25 marks) Consider the following information: State of Economy Probability Recession 0.30 Normal 0.50...
Question 3
Consider the following information:
State of Economy Probability Recession 0.30 Normal 0.50 Boom
0.20
Required:
Rate of return
Stock A 2% 7% 12%
Stock B
5% 4% 3%
Calculate the expected return for the two Stocks A and B
respectively.
Calculate the standard deviation for the two Stocks A and B
respectively.
If you own a portfolio that has $1.3 million invested in Stock A
and $2.2 million
invested in Stock B. Calculate the expected return and standard...
Consider the following information: State of Probability of State Rate of Return if State Occurs...
Consider the following information:
State of
Probability of State
Rate of Return if State Occurs
Economy
of
Economy
Stock A
Stock B
Stock C
Boom
.70
.08
.02
.28
Bust
.30
.17
.23
–
.08
a. What is the expected return on an equally
weighted portfolio of these three stocks? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Expected return
%
b. What is the variance of...
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State...
Consider the following information: Rate of Return if State
Occurs State of Economy Probability of State of Economy Stock A
Stock B Recession 0.30 0.06 –0.20 Normal 0.30 0.11 0.11 Boom 0.40
0.15 0.28 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...
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State...
Consider the following information: Rate of Return if State
Occurs State of Economy Probability of State of Economy Stock A
Stock B Recession 0.10 0.05 -0.18 Normal 0.60 0.08 0.14 Boom 0.30
0.13 0.33 Required: (a) Calculate the expected return for Stock A.
(Do not round your intermediate calculations.) (b) Calculate the
expected return for Stock B. (Do not round your intermediate
calculations.) (c) Calculate the standard deviation for Stock A.
(Do not round your intermediate calculations.) (d) Calculate the...
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State...
Consider the following information: Rate of Return if State
Occurs State of Economy Probability of State of Economy Stock A
Stock B Stock C Boom .30 .19 .43 .24 Good .20 .17 .17 .14 Poor .10
−.04 −.14 .03 Bust .40 −.16 −.22 −.11 a. Your portfolio is invested
25 percent each in Stocks A and C and 50 percent in Stock B. What
is the expected return of the portfolio?
Expected return:____________%
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State...
Consider the following information: Rate of Return if State
Occurs State of Economy Probability of State of Economy Stock A
Stock B Recession 0.10 0.04 -0.18 Normal 0.70 0.08 0.12 Boom 0.20
0.12 0.33 Required: (a) Calculate the expected return for Stock A.
(Do not round your intermediate calculations.) (b) Calculate the
expected return for Stock B. (Do not round your intermediate
calculations.) (c) Calculate the standard deviation for Stock A.
(Do not round your intermediate calculations.) (d) Calculate the...
Consider the following information: Rate of Return if State Occurs State of Probability of State Economy...
Consider the
following information:
Rate of Return if State Occurs
State of
Probability of State
Economy
of
Economy
Stock A
Stock B
Stock C
Boom
.69
.12
.06
.37
Bust
.31
.26
.32
–.17
Required:
(a)
What is the expected return on an equally weighted portfolio of
these three stocks? (Do
not round intermediate calculations. Enter your answer as a
percentage rounded to 2 decimal places (e.g.,
32.16).)
Expected
return
%
(b)...
Consider the following information: Rate of Return if State Occurs State of Probability of State Economy...
Consider the following
information:
Rate of Return if State Occurs
State of
Probability of
State
Economy
of
Economy
Stock A
Stock B
Recession
0.21
0.040
–0.31
Normal
0.61
0.120
0.21
Boom
0.18
0.200
0.44
Requirement
1:
Calculate the expected return for the two stocks. (Do
not include the percent signs (%). Round your answers to 2 decimal
places (e.g., 32.16).)
Calculate the standard deviation for the two stocks. (Do
not include...
Consider the following information: Rate of Return if State Occurs State of Probability of Economy State...
Consider the following information: Rate of Return if State
Occurs State of Probability of Economy State of Economy Stock A
Stock B Stock C Boom .68 .13 .22 .40 Bust .32 .10 .04 ? .08 a. What
is the expected return on an equally weighted portfolio of these
three stocks? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Expected return 18.09 % b. What is the variance of a...
Consider the following information: Rate of Return if State Occurs State of Probability of State Economy...
Consider the following information:
Rate of Return if State Occurs
State of
Probability of State
Economy
of Economy
Stock A
Stock B
Recession
.15
.02
–.30
Normal
.50
.10
.18
Boom
.35
.15
.31
a.
Calculate the expected return for the two stocks.
(Do not round intermediate calculations
and enter your answers as a percent rounded to 2
decimal places, e.g., 32.16.)
b.
Calculate the standard deviation for the two stocks....
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