Question
In: Finance
Consider the following scenarios for Space Corp.’s likely equity returns per year: Scenario Probability &
- Consider the following scenarios for Space Corp.’s likely equity returns per year:
Scenario Probability Expected Returns
Really Bad 15% (5%)
Bad 20% 2.5%
Likely 30% 7.5%
Better 20% 12.5%
Really Good 15% 20%
What is the expected return for this security per year?
What is the standard deviation of expected returns?
What are the expected returns with a 90% confident interval, if this follows the normal distribution?
Solutions
Expert Solution
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jeff jeffy answered 1 year agoRelated Solutions
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Sudha Krishnaswami Lecture Notes
Page 1 of 3
Homework-6
a) Calculate the expected rates of return for the two
stocks.
b) Calculate the standard deviation of returns for the two
stocks.
c) Calculate the expected return and standard deviation on a
portfolio P made up of 75%
invested in McNally stock and the remaining...
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B.
Scenario
Probability
Return on Stock A
Return on Stock B
1
.35
12%
-15%
2
.4
4%
5%
3
.25
-4%
25%
1. What are the expected returns and standard deviations for
stocks A and B?
2. What is the correlation coefficient between the two
stocks?
3. Suppose the risk-free rate is 2%. What is the optimal risky
portfolio, its expected return and its standard deviation?
4. Suppose that stocks...
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.12
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.01
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.20
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.12
.10
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Probability
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Gold
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-8
+20
.75(-8) + .25 (20) = -1.0%
Normal
1/3
+5
+3
.75(5) + .25 (3) = +4.5%
Boom
1/3
+18
-20
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Expected Return
Auto
(-8+5+18)/3 = 5%
Gold
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Portfolio
(-1+4.5+8.5)/3 = 4%
Variance
Auto
(169+0+169)/3 = 112.7 (std. 10.6%)
Gold
(361+4+441)/3 = 268.7 (std. 16.4%)
Portfolio
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Homework:
1) Show...
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