Question
In: Finance
Consider the following information on 3 stocks. State of the economy Probability of state of economy...
- Consider the following information on 3 stocks.
|
State of the economy |
Probability of state of economy |
Return of stock A |
Return of Stock B |
Return of Stock C |
|
Recession |
0.20 |
.24 |
.36 |
.55 |
|
Normal |
0.55 |
.17 |
.13 |
.09 |
|
Boom |
0.25 |
0 |
-.28 |
-.45 |
- If your portfolio is invested 40% in A , 40% in B and 20% in C. What is the portfolio expected return?
- What is the portfolio standard deviation?
- If the expected t-bill rate is 3.8%, what is the expected risk premium on the portfolio?
- If the expected inflation rate is 3.5%, what are the approximate and exact expected real returns on the portfolio?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Consider the following information on three stocks: State of Economy Probability of State of Economy Rate...
Consider the following information on three stocks:
State of
Economy
Probability of
State of Economy
Rate of Return
if State Occurs
Stock A
Stock B
Stock C
Boom
.25
.27
.15
.11
Normal
.65
.14
.11
.09
Bust
.10
−.19
−.04
.05
A portfolio is invested 45 percent each in Stock A and Stock B
and 10 percent in Stock C. What is the expected risk premium on the
portfolio if the expected T-bill rate is 4.1 percent?
A.
8.71...
consider the following information about three stocks: state of economy. probability of state of &
consider the following information about three
stocks:
state of economy. probability of state
of
economy
boom.
0.20
normal.
0.55
bust.
0.25
rate of return if state occurs
stock
A.
Stock
B.
stock C
0.38.
0.50.
0.50
0.16.
0.14.
0.12
0.00.
-0.30.
-0.50
a-1. if your portfolio is invested 30%each in A and B
and 40% in C, what is the portfolio expected return?
a-2. what is the variance?
a-3. what is the standard deviation?
b. if the expected T-bill...
Consider the following information on Stocks X and Y: State of Economy Probability of State of...
Consider the following information on Stocks X and Y: State of
Economy Probability of State of Economy Rate of Return if State
Occurs Stock X Stock Y Recession 0.24 0.065 −0.29 Normal 0.69 0.365
0.21 Irrational exuberance 0.07 0.225 0.49 The market risk premium
is 11.9 per cent and the risk-free rate is 4.9 per cent. a.
Calculate the expected return, beta and standard deviation of stock
X. (Do not round intermediate calculations. Enter the expected
returns and standard deviations...
Consider the following information on Stocks I and II: State of Economy Probability of State of...
Consider the
following information on Stocks I and II:
State of Economy
Probability of
State of Economy
Rate of Return if
State Occurs
Stock I
Stock II
Recession
.20
.02
−.20
Normal
.55
.32
.12
Irrational exuberance
.25
.18
.40
The market risk premium is 7 percent, and the risk-free rate is
4 percent.
Calculate the beta and standard deviation for both stocks
Also include which one has more systematic risk, and which is
riskier?
Consider the following information on Stocks I and II: State of Economy Probability of State of...
Consider the following information on Stocks I and II:
State of Economy
Probability of
State of Economy
Rate of Return if State Occurs
Stock I
Stock II
Recession
.22
.055
−.27
Normal
.67
.355
.19
Irrational exuberance
.11
.215
.47
The market risk premium is 11.7 percent, and the risk-free rate is
4.7 percent.
Requirement 1:
(a)
Calculate the beta and standard deviation of Stock I. (Do not round
intermediate calculations. Enter the standard deviation as a
percentage. Round your...
Consider the following information on Stocks I and II: State of Economy Probability of State of...
Consider the following information on Stocks I and II: State of
Economy Probability of State of Economy Rate of Return if State
Occurs Stock I Stock II Recession .24 .030 −.34 Normal .59 .340 .26
Irrational exuberance .17 .200 .44 The market risk premium is 11.4
percent, and the risk-free rate is 4.4 percent. Requirement 1: (a)
Calculate the beta and standard deviation of Stock I. (Do not round
intermediate calculations. Enter the standard deviation as a
percentage. Round your...
Consider the following information about Stocks I and II: State of Economy Probability of state of...
Consider the following information about Stocks I and II:
State of Economy
Probability of state of economy
Stock 1
Stock 2
Recession
0.28
0.05
-0.20
Normal
0.53
0.17
0.07
Irrational Exuberance
0.19
0.06
0.40
The market risk premium is 8 percent, and the risk-free rate is
2 percent.
The standard deviation on Stock 1's return is ________ percent,
and the Stock 1 beta is _________. The standard deviation on Stock
2's return is ________ percent, and the Stock 2 beta...
Consider information regarding the following two stocks. The probability of each state of the economy is...
Consider information regarding the following two stocks. The
probability of each state of the economy is 1/3. No dividends are
paid.
STOCK. Initial Price. Boom. Normal Bust
A. 40 60 50 25
B. 25 20 25 35
(a) What is the expected value and the standard deviation of the
rate of return of each stock?
(b) Which stock is the better investment for you? Why?
Consider the following information: State of the Economy Probability of State of the Economy Return on...
Consider the following information:
State of the Economy
Probability of State of the Economy
Return on A %
Return on B %
Boom
0.40
10
4
Growth
0.20
-4
0
Normal
0.20
24
16
Recession
0.20
16
20
a) What is the
expected return for A? For
B?
b) What is the
standard deviation for A? For
B?
c) What is the
expected return on a portfolio of A and B that is 30% invested in A
and the remainder...
Consider the following information: State of Economy Probability of State of Economy Rate of Return if...
Consider the following information:
State of
Economy
Probability of
State of Economy
Rate of Return
if State Occurs
Stock A
Stock B
Recession
.04
.097
.102
Normal
.72
.114
.133
Boom
.24
.156
.148
The market risk premium is 7.4 percent, and the risk-free rate is
3.1 percent. The beta of Stock A is ________ and the beta of Stock
B is ________.
a) 1.25; 1.41
b) 1.47; 1.76
c) 1.21; 1.76
d) 1.25; 1.89
e) 1.47; 1.41
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