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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Consider the following two scenarios for the economy and the
expected returns in each scenario for the market portfolio, an
aggressive stock A, and a defensive stock D. Rate of Return
Scenario Market Aggressive Stock A Defensive Stock D
Bust –8 % –13 % –6 %
Boom 26 35 19 Required:
a. Find the beta of each stock.
b. If each scenario is equally likely, find the expected rate of
return on the market portfolio and on each stock.
c....
Consider the following two scenarios for the economy and the expected returns in each scenario for...
Consider the following two scenarios for the economy and the
expected returns in each scenario for the market portfolio, an
aggressive stock A, and a defensive stock D.
Rate of Return
Scenario
Market
Aggressive
Stock A
Defensive
Stock D
Bust
–8
%
–10
%
–5
%
Boom
30
40
22
Required:
a. Find the beta of each stock.
b. If each scenario is equally likely, find the
expected rate of return on the market portfolio and on each
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c....
Consider the following two scenarios for the economy and the expected returns in each scenario for...
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Scenario
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Stock A
Defensive
Stock D
Bust
–6
%
–12
%
–4
%
Boom
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36
10
a. Find the beta of each stock. (Round
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b. If each scenario is equally likely, find the
expected rate of return on the market...
onsider the following two scenarios for the economy and the expected returns in each scenario for...
onsider the following two scenarios for the economy and the
expected returns in each scenario for the market portfolio, an
aggressive stock A, and a defensive stock D.
Rate of Return
Scenario
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Stock A
Defensive
Stock D
Bust
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%
–10
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–5
%
Boom
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a. Find the beta of each stock. (Round
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b. If each scenario is equally likely, find the
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Rand Inc. and McNally Corp. have the following probability distribution of returns: Probability Rand Returns McNally...
Rand Inc. and McNally Corp. have the following probability
distribution of returns: Probability Rand Returns McNally
Returns
0.3 15% 12% 0.4 9 5 0.3 18 20
a) Calculate the expected rates of return for the two
stocks.
b) Calculate the standard deviation of returns for the two
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c) Calculate the expected return and standard deviation on a
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Returns
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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...
Consider the following probability distribution for stocks A and B. Scenario Probability Return on Stock A...
Consider the following probability distribution for stocks A and
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...
The S&P 500 and Nohr Corp had the following returns over the past five years Year ...
The S&P 500 and Nohr Corp had the following returns over the
past five years
Year S&P
500
Nohr
.12
.23
.01
-.05
.18
.20
.09
.12
.10
.20
a. What was the mean AND standard
deviation of returns (population version)
for Nohr for the 5 years?
b. What was the beta of Nohr relative to the S&P 500?
c. What was the geometric mean return for Nohr
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Consider the following: Returns Scenario Probability Auto Gold Portfolio (75% auto, 25% gold) Recession 1/3 -8...
Consider the following:
Returns
Scenario
Probability
Auto
Gold
Portfolio (75% auto, 25% gold)
Recession
1/3
-8
+20
.75(-8) + .25 (20) = -1.0%
Normal
1/3
+5
+3
.75(5) + .25 (3) = +4.5%
Boom
1/3
+18
-20
.75(18) + .25 (-20) = +8.5%
Expected Return
Auto
(-8+5+18)/3 = 5%
Gold
(+20+3-20)/3 = 1%
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
(25+.25 +20.25)/3 = 15.2 (std 3.9%)
Homework:
1) Show...
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