Question
In: Finance
Compute the expected return and standard deviation for the following properties. The current price of each...
Compute the expected return and standard deviation for the following properties. The current price of each property is $500,000. Which has the better risk-return tradeoff?
Property A:
- Pessimistic: NOI stays flat at $50,000 per year for the next 5 years. Resale price is $500,000 in year 5. Probability = 25%.
- Most Likely: NOI starts at $50,000 the first year and grows by 1% for the next 5 years. Resale price is $525,000 in year 5. Probability = 50%.
- Optimistic: NOI starts at $50,000 the first year and grows by 3% for the next 5 years. Resale price is $575,000 in year 5. Probability = 25%.
Property B:
- Pessimistic: NOI starts at $50,000 the first year and decreases by 2% for the next 5 years. Resale price is $475,000 in year 5. Probability = 25%.
- Most Likely: NOI starts at $50,000 the first year and grows by 1% for the next 5 years. Resale price is $525,000 in year 5. Probability = 50%.
- Optimistic: NOI starts at $50,000 the first year and grows by 5% for the next 5 years. Resale price is $600,000 in year 5. Probability = 25%.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Compute the Compute the Expected Return and Standard Deviation (risk) of the the portfolio below: Economy...
Compute the
Compute the Expected Return and Standard Deviation (risk)
of the the portfolio below:
Economy Chances Stock A Stock B Stock C
Weight 30% 40% 30%
Boom 15% 30% 45% 33%
Normal 50% 1% -15% -5%
Poor 35% -20% -30% -9%
E( R ) =
Risk =
Calculate the expected return and standard deviation of the portfolio.
A portfolio consists of two stocks:
Stock Expected Return Standard Deviation Weight
Stock 1 10% 15% 0.30
Stock 2 13% 20% ???
The correlation between the two stocks’ return is 0.50
Calculate the expected return and standard deviation of the portfolio.
Expected Return:
Standard Deviation:
(i) Briefly explain, in general, when there would be “benefits of diversification” (for any portfolio of two securities).
(ii) Describe whether the above portfolio would...
Stock X has an expected return of 11% and the standard deviation of the expected return...
Stock X has an expected return of 11% and the standard deviation
of the expected return is 12%. Stock Z has an expected return of 9%
and the standard deviation of the expected return is 18%. The
correlation between the returns of the two stocks is +0.2. These
are the only two stocks in a hypothetical world.
A.What is the expected return and the
standard deviation of a portfolio consisting of 90% Stock X and 10%
Stock Z? Will any...
The expected return on Tobiko is 13% and its standard deviation is 21.8%. The expected return...
The expected return on Tobiko is 13% and its standard deviation
is 21.8%. The expected return on Chemical Industries is 10% and its
standard deviation is 27.7%.
a.
Suppose the correlation coefficient for the two
stocks' returns is 0.29. What are the expected return and standard
deviation of a portfolio with 56% invested in Tobiko and the rest
in Chemical Industries? (Round your answers to 2 decimal
places.)
Portfolio's expected return
%
Portfolio's standard deviation
%
b.
If the...
What is the expected return, standard deviation, and CV for each of these stocks? Which offers...
What is the expected return, standard deviation, and CV for each
of these stocks? Which offers you the best risk/reward ratio?
Prob.
Alpha
Beta
0.2
Great
22%
31%
0.4
Average
12%
15%
0.2
Poor
-5%
-10%
0.2
Catastrophic
-15%
-20%
Stocks A and B each have an expected return of 15%, a standard deviation of 20%,...
Stocks A and B each have an expected return of 15%, a standard
deviation of 20%, and a beta of 1.2. The returns on the two stocks
have a correlation coefficient of -1.0. You have a portfolio that
consists of 50% A and 50% B. Which of the following statements is
CORRECT?
The portfolio's standard deviation is zero (i.e., a riskless
portfolio).
The portfolio's standard deviation is greater than 20%.
The portfolio's expected return is less than 15%.
The portfolio's...
ased on the following information, the expected return and standard deviation for Stock A are ________percent...
ased on the following information, the expected return and
standard deviation for Stock A are ________percent and
________percent, respectively. The expected return and standard
deviation for Stock B are _______ percent and ______percent,
respectively. (Do not include the percent signs (%). Round
your answers to 2 decimal places. (e.g., 32.16))
Rate of Return if State Occurs
State of
Economy
Probability of
State
of Economy
Stock A
Stock B
Recession
0.1
0.04
-0.2
Normal
0.7
0.09
...
Based on the following data; (a) calculate the expected return and the standard deviation of returns...
Based on the following data;
(a) calculate the expected return and the standard deviation of
returns for each stock.
State of the
Economy
Probability Stock A Rate of
Return Stock B Rate of Return
Recession
0.25
6%
-20%
Normal Growth
0.45
7%
13%
Boom
0.3
11%
33%
(b) Calculate the expected return and the standard deviation on
the portfolio, where
the portfolio is formed by investing 65% of the funds in Stock A
and the rest in Stock B
Use the following information to calculate the expected return and standard deviation of a portfolio that...
Use the following information to calculate the expected return
and standard deviation of a portfolio that is 30 percent invested
in 3 Doors, Inc., and 70 percent invested in Down Co.
3 Doors, Inc
Down Co
Expected Return, E(R)
18%
14%
Standard deviation
48
50
Correlation .33
Use the following information to calculate the expected return and standard deviation of a portfolio that...
Use the following information to calculate the expected return
and standard deviation of a portfolio that is 50 percent invested
in 3 Doors, Inc., and 50 percent invested in Down Co.: (Do
not round intermediate calculations. Enter your answers as a
percent rounded to 2 decimal places.)
3 Doors, Inc.
Down Co.
Expected return, E(R)
14
%
10
%
Standard deviation, σ
42
31
Correlation
0.10
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