Please correct answer and don't use hand rating 1. Consider the following probability distribution for stocks Aand B:State Probability Return on Stock A Return on Stock B1 25 % 10 % 11%2 50 % 15 % 12%3 25 % 18 % 15%1) What are the expected rates of return of stocks A and B.respectively?

Given the probability distribution for stocks A and B,ProbabilityReturn on Stock-AReturn on…

Answered: 1. Consider the following probability…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 1P

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Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.10 10% 8% 2 0.20 13% 7% 3 0.20 12% 6% 4 0.30 14% 9% 5 0.20 15% 8% The coefficient of correlation between A and B is:
Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% Calculate covariance and coefficient of correlation between the returns of thestocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfoliocomprising of $45,000 invested in stock A and remaining amount in stock B.Calculate risk and return of your portfolio.
3. The following information is given with respect to stock A: Scenario Probability Market return 1 0.1 -0.18 2 0.3 0.07 3 0.4 0.16 4 0.2 0.21 Knowing that the Rfis 0.07 compute alpha and the information ratio. Portfolio P return -0.32 0.00 0.22 0.40
Consider the following stocks with equal probabilities of return: Outcome Return Stock A Return Stock B 1 -5% 2% 2 10% 12% 3 18% 15% a. compute the expected returns of stock A and B. b. compute the total risk and relative risk of stock A and B. Which stock is risky? c. Ignoring the probabilities, what is the total risk and relative risk of stock A and B? Which stock is risky? Round-off final answers only to two decimal places. Attach hand-written/excel solution here.
Consider the following probability distribution for stocks A and B: State Return on Stock A 1 10% 2 13% 3 12% 4 14% 5 15% 0.46. The coefficient of correlation between A and B is 0.60. 0.58. 1.20. Probability 0.10 0.5. 0.20 0.20 0.30 0.20 Return on Stock B 8% 7% 6% 9% 8%
Question 1 Suppose you have the following expectations about the market condition and the returns on Stocks X and Y. Market Condition Probability Return on Stock X Return on Stock Y Bear Market 0.3 -3% -5% Normal Market 0.5 3% 5% Bull Market 0.2 8% 15% a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?
Stocks Y has the following probability distributions of expected future returns PROBABILITY Y% 0.1 8 0.3 12 0.4 15 0.2 35 0.6 52 What is the Risk per unit return of Stock Y?
Suppose you have the following expectations about the market condition and the returns on Stocks X and Y. a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?
Which of the following statement(s) is(are) true? 1) The real rate of interest is determined by the supply and demand for funds. II) The real rate of interest is determined by the expected rate of inflation. III) The real rate of interest is unaffected by actions of the Fed. IV) The real rate of interest is equal to the nominal interest rate plus the expected rate of inflation. III and IV only. I only. OII and III only. O, II, III, and IV only. OI and III only.
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Suppose securities A, B, and C have the following expected return and risk. Stock Expected return Risk A 8% 6% B 7% 9% C 13% 9% What is the coefficient of variation for stock A?
Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-earnings multiple of 11.0 and is priced to offer a 10.9% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.6%. Calculate the following: Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e, stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below. Reg A to E Reg F to G2…

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1. Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 25 % 10 % 11% 2 50 % 15 % 12% 3 25 % 18 % 15% 1) What are the expected rates of return of stocks A and B. respectively?