Question

In: Finance

State of the economy Probability Stock P Stock Q Boom .7 32% 18% Recession .3 -14%...

State of the economy Probability Stock P Stock Q Boom .7 32% 18% Recession .3 -14% -5% a. What is the expected return of Stock P? b. What is the expected return of Stock Q? c. What is the expected return of a portfolio 60 percent invested in Stock P and the remainder in Stock Q? d. What is the standard deviation of a portfolio 60 percent invested in Stock P and the remainder in Stock Q?

Solutions

Expert Solution


Related Solutions

The probability of state in boom economy is 20%. The rate of stock return is 20%...
The probability of state in boom economy is 20%. The rate of stock return is 20% and the bond rate of return is 10%. The probability of state in normal good growth economy is 25%. The stock rate of return is 10% and the bond rate of return is 5% The probability of state in normal growth economy is 15%. The stock rate of return is 3% and the bond rate of return is 5% The probability of state in...
1. Assume the economy can either be booming or in recession. The probability of a boom...
1. Assume the economy can either be booming or in recession. The probability of a boom is 65%. If the economy is booming, a certain stock has an expected return of 20%. If the economy is in recession, the expected return of that same stock is 4%. What is the long term expected return of the stock? 2. Over the last year you observe that a certain company had a stock return of 24%, while the market had a return...
Consider the following for returns of Stock A and B State of economy Recession Probability 0.20...
Consider the following for returns of Stock A and B State of economy Recession Probability 0.20 Stock A -0.020 Stock B. 0.034 Normal Probability 0.50 Stock A 0.138 Stock B. 0.062 Boom Probability 0.30 Stock A 0.218 Stock B 0.092 The market return is 12% the risk free rate is 5% assuming CAPM holds the market is in equilibrium the forecast E(r)= required E(R) Which stock has more total risk which stock has more systametic risk explain your answers
Suppose an economy has three states: boom, normal, and recession. Assume that the probability of a...
Suppose an economy has three states: boom, normal, and recession. Assume that the probability of a boom state is 0.2, a normal state is 0.5, and a recession state is 0.3. And there are three stocks in this economy, called Alpha, Beta, and Gamma respectively. The return performance of these stocks has been summarized by the following table: Alpha Beta Gamma boom 15% 28% 1% normal 6% 12% 3% recession -12% -30% 20% (Please show your intermediate processes, instead of...
Suppose an economy has three states: boom, normal, and recession. Assume that the probability of a...
Suppose an economy has three states: boom, normal, and recession. Assume that the probability of a boom state is 0.2, a normal state is 0.5, and a recession state is 0.3. And there are three stocks in this economy, called Alpha, Beta, and Gamma respectively. The return performance of these stocks has been summarized by the following table: Alpha Beta Gamma boom 15% 28% 1% normal 6% 12% 3% recession -12% -30% 20% (Please show your intermediate processes, instead of...
State of the Economy Probability HPR (Fund A) HPR (Fund B) Boom .50 7% 25% Normal...
State of the Economy Probability HPR (Fund A) HPR (Fund B) Boom .50 7% 25% Normal growth .3 -5% 10% Recession .2 20% -25% 1.   What are the expected holding period returns for Fund A and Fund B? 2. What are the expected standard deviations for Fund A and Fund B? 3. What are the covariance and correlation coefficient between the returns of Fund A and Fund B? 4. Now using Fund A and Fund B to construct our optimal...
A. A stock is expected to earn 29 percent in a boom economy and 14 percent...
A. A stock is expected to earn 29 percent in a boom economy and 14 percent in a normal economy. There is a 42 percent chance the economy will boom and a 58.0 percent chance the economy will be normal. What is the standard deviation of these returns? B. A portfolio consists of 35 percent Stock A, 54 percent Stock B, and 11 percent Stock C. What is the portfolio expected return given the following: State of Economy Probability of...
Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A...
Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession .25 .03 −.15 Normal .55 .13 .13 Boom .20 .16 .33 a. Calculate the expected return for the two stocks. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. Calculate the standard deviation for the two stocks. (Do not round your intermediate calculations. Enter your answers as a percent rounded to 2 decimal...
Rate of return if state occurs State of economy Probability of state of economy Stock A...
Rate of return if state occurs State of economy Probability of state of economy Stock A Stock B Stock C Boom 0.3 0.35 0.45 0.38 Good 0.3 0.15 0.20 0.12 Poor 0.3 0.05 –0.10 –0.05 Bust 0.1 0.00 –0.30 –0.10 5.         Consider the following information on three stocks in four possible future states of the economy:                        Your portfolio is invested 30% in A, 50% in B, and 20% in C. What is the expected return of your portfolio? What...
State of Economy Probability of State of Economy Return of Stock A if State Occurs Return...
State of Economy Probability of State of Economy Return of Stock A if State Occurs Return of Stock B if State Occurs Recession 0.30 -0.20 0.10 Normal ? 0.30 0.20 Boom 0.15 0.40 0.30 What is the expected return for Stock A? What is the standard deviation for Stock A? Suppose you have $50,000 total. If you put $20,000 in Stock A and the remainder in Stock B, what are the portfolio returns in each state? Suppose you have $50,000...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT