Question

In: Finance

[Q8-Q10] The following table shows four economic scenarios for next year with their respective probabilities. Also...

[Q8-Q10] The following table shows four economic scenarios for next year with their respective probabilities. Also included in the table are the returns on stock A and returns on the market under the four scenarios.

Scenario Probability RA RMarket
Boom 0.25 0.45 0.3
Normal 0.50 0.15 0.1
Recession 0.20 -0.075 -0.05
Disaster 0.05 -0.75 -0.5

QUESTION 8

  1. Suppose that stock B has a beta of 3 and a volatility (i.e. return standard deviation) of 0.35. Between stock A and stock B, which stock has more systematic risk? Which stock has more total risk?

    A.

    Stock B; Stock B
    B.

    Stock B; Stock A
    C.

    Stock A; Stock B
    D.

    Stock A; Stock A

QUESTION 9

  1. You hold $20,000 of stock A and $40,000 of stock B. What is the beta of your portfolio?

    A.

    1.5
    B.

    -1
    C.

    0
    D.

    2.5

QUESTION 10

  1. What is the expected return on your portfolio? Assume that the CAPM holds and the risk-free rate is 0.03.

    A.

    0.12
    B.

    0.18
    C.

    0
    D.

    0.03

Please help and show work.

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

The following table shows prices of three shares that would prevail under three economic scenarios.
The following table shows prices of three shares that would prevail under three economic scenarios. stock A B CRecession A=12,B=8,C=9Normal A=7,B=13,C=9BOOM A=15,B=5,C=9If all of these stocks cost $8 today. Perform necessary calculations to check if there are any arbitrage opportunities.
The table below shows the probability of three economic scenarios and the corresponding percent return for...
The table below shows the probability of three economic scenarios and the corresponding percent return for stock X and stock Y (note that f(x) = f(y) =f(x+y)=f(x,y)                                         Economy Probability f(x,y) Return On X Return On Y recession .20 -15 7 stable .55 8 3 Strong .25 20 1 You are given the expected value E(x) = 6.4, the variance Var(x) = 139.24, and E(y) = 3.3,   Var(y) = 4.11 a) Find the expected value E(x+y) b) Find the variance Var(x+y)...
2. The following table shows that the economy next year has three possible states: Good ,...
2. The following table shows that the economy next year has three possible states: Good , Average and Poor. It also shows the correponding probability of each states. The column of stock A shows the investment rate of return (%) for stock A; and the column of Stock B shows the invesment rate of return for stock B. Return (%) State Probability Stock A Stock B Good 0.4 15 8 Average 0.5 9 10 Poor 0.1 6 12 a) Calculate...
18. There are four scenarios with probabilities 0.05, 0.25, 0.4 and 0.3. A stock fund has...
18. There are four scenarios with probabilities 0.05, 0.25, 0.4 and 0.3. A stock fund has returns -37, -11, 14, 30 respectively, while a bond fund has returns -9, 15, 8, -5 respectively. The correlation between the two funds is (a) -0.49 (b) 0.49 (c) 0.89 (d) -0.89
An automobile insurance company estimates the following loss probabilities for the next year on a $20,000...
An automobile insurance company estimates the following loss probabilities for the next year on a $20,000 sports car: Total Loss: .001 50% Loss: .01 20% Loss: .05 If the company charges $850 annual premium for this car, how much is the company's expected gain per policy? X P(X) x. P(x) D D- Sum My professor wants the answer in the table above (if possible). I am unsure on how to answer this.
3The table below shows the number of diapers demanded daily and the cumulative probabilities associated with...
3The table below shows the number of diapers demanded daily and the cumulative probabilities associated with each level of demand. Daily Demand 1 2 3 Cumulative Probability 0.12 0.25 1 If a random number 67 is generated. What would be the simulated demand ?
The table below shows the returns and probabilities of 3 different financial assets (A, B, C)....
The table below shows the returns and probabilities of 3 different financial assets (A, B, C). Which financial asset should be preferred according to the Risk-Return analysis? (Coefficient of Change will be calculated over Standard Deviation / Expected Return.). You can use 4 digits after the comma in your calculations. Possibility Return A Return B Return C 0,10 (-)0,09 0,01 (-)0,20 0,35 0,08 0,05 (-)0,10 0,40 0,13 0,10 0,25 0,15 0,20 0,15 0,75
The table below shows the returns and probabilities of 3 different financial assets (A, B, C)....
The table below shows the returns and probabilities of 3 different financial assets (A, B, C). Which financial asset should be preferred according to the Risk-Return analysis? (Coefficient of Change will be calculated over Standard Deviation / Expected Return.). You can use 4 digits after the comma in your calculations. Possibility Return A Return B Return C 0.10 (-)0,09 0,01 (-)0,20 0.35 0,08 0,05 (-)0,10 0,40 0,13 0,10 0,25 0,15 0,20 0,15 0,75 I would appreciate if you show transactions
The table below shows two countries with their respective GDP per capita at PPP, life expectancy,...
The table below shows two countries with their respective GDP per capita at PPP, life expectancy, adult literacy, and Gross enrolment rates in 2017, as well as the UNDP’s minimum and maximum rates. Country GDP per capita PPP in $ Life Expectancy at birth in years Adult literacy rate in % Gross enrolment rate in % Greece Ghana 28,517 4,200 79.1 63.5 97.1 45.5 98.5 75.5 Minimum Maximum 100 40,000 25 85 0 100 0 100 Explain the UNDP Human...
The following table shows the total costs for each of four firms (A, B, C, and...
The following table shows the total costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103. Firm Unit to be eliminated A B C D One unit 46 45 42 49 Two units 103 100 98 108 Three...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT