Question
In: Finance
The probability distributions of possible returns for Stocks X and Y are as follows: Economic State ...
The probability distributions of possible returns for Stocks X and Y are as follows:
Economic State Probability X Y
Recession 0.2 -15% -5%
Normal 0.6 20% 15%
Boom 0.2 30% 25%
- Calculate the expected return on each stock. Show your calculations. (8 points)
- Calculate the standard deviation for each stock. Show your calculations. (10Points)
- Which stock do you consider riskier? Explain. (2 Points)
- In which stock would you prefer to invest? Explain. (2 Points)
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Stocks X and Y have the following probability distributions of expected returns for four possible economic...
Stocks X and Y have the following probability distributions of
expected returns for four possible economic states.
Economy State
Probability
Stock X
Stock Y
1
0.1
-8%
5%
2
0.4
-10%
8%
3
0.4
9%
-2%
4
0.1
14%
-10%
e. Calculate the two-stock portfolio’s standard deviation.
f. Calculate the two-stock portfolio’s beta.
g. If the overall market return is 8% and the risk-free rate is
1%, what is the two-stock portfolio’s required return?
h. How can you reallocate t
Stocks X and Y have the following probability distributions of expected returns for four possible economic...
Stocks X and Y have the following probability distributions of
expected returns for four possible economic states.
Economy State
Probability
Stock X
Stock Y
1
0.1
-8%
5%
2
0.4
-10%
8%
3
0.4
9%
-2%
4
0.1
14%
-10%
Suppose you construct a two-stock portfolio that has $3 million
invested in Stock X and $1 million invested in Stock Y. The beta of
Stock X is 20% higher than the beta of overall stock market. Stock
Y’s beta is...
Stocks X and Y have the following probability distributions of expected future returns: Probability X Y 0.3 &nb
Stocks X and Y have the following probability distributions of
expected future returns:
Probability X Y
0.3 2% 25%
0.4 12% 20%
0.3 20% 0%
One investor invests 40% in stock X and 60% in stock Y. Calculate
the expected return, standard deviation, and coefficient of
variation Stocks X and Y. Compute the expected rate of return for
the portfolio.
Stocks X and Y have the following probability distributions of expected future returns: Probability X Y 0.3 &nb
Stocks X and Y have the following probability distributions of
expected future returns:
Probability X Y
0.3 2% 25%
0.4 12% 20%
0.3 20% 0%
One investor invests 40% in stock X and 60% in stock Y. Calculate
the expected return, standard deviation, and coefficient of
variation Stocks X and Y. Compute the expected rate of return for
the portfolio.
You have estimated the following probability distributions of expected future returns for Stocks X and Y:...
You have estimated the following probability distributions of
expected future returns for Stocks X and Y:
Stock X
Stock Y
Probability
Return
Probability
Return
0.1
-12
%
0.2
4
%
0.2
11
0.2
7
0.2
18
0.3
10
0.2
25
0.1
18
0.3
45
0.2
19
What is the expected rate of return for Stock X? Stock Y? Round
your answers to one decimal place.
Stock X: %
Stock Y: %
What is the standard deviation of expected returns for Stock X?...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(8%)
(21%)
0.2
6
0
0.4
10
24
0.2
24
30
0.1
36
49
Calculate the expected rate of return, rB, for Stock
B (rA = 12.80%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 18.87%.) Do not round
intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
(14%)
(35%)
0.2
4
0
0.3
12
20
0.2
18
29
0.1
30
42
Calculate the expected rate of return, rB, for Stock
B (rA = 8.20%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 25.07%.) Do not round
intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
(11%)
(27%)
0.2
3
0
0.3
11
21
0.2
22
27
0.1
40
41
A.Calculate the expected rate of return, rB, for
Stock B (rA = 10.10%.) Do not round intermediate
calculations. Round your answer to two decimal places.
%
B.Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 22.00%.) Do not round
intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(14%)
(29%)
0.2
3
0
0.4
13
23
0.2
24
27
0.1
35
37
Calculate the expected rate of return, rB, for Stock
B (rA = 12.70%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 18.47%.) Do not round
intermediate calculations. Round your...
Expected returns Stocks A and B have the following probability distributions of expected future returns: Probability...
Expected returns
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
-10%
-39%
0.2
6
0
0.3
11
21
0.2
20
27
0.1
36
44
Calculate the expected rate of return, rB, for Stock
B (rA = 10.10%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 26.59%.) Do not round
intermediate calculations. Round your...
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