14. SNOFI Inc.'s manager believes that economic conditions during the next year will be strong, normal, or weak, and he thinks that the firm's returns will have the probability distribution shown below. What's the expected return & standard deviation of the estimated returns? * Economic Probability Return Conditions Strong 0.55 0.45 Normal 0.35 0.2 Weak 0.1 -0.1 O A) 30.75%, 17.83% B) 0.1783; 0.3075 C) 3.07%; 3.18% O D) None of the above

14. SNOFI Inc.'s manager believes that economic conditions during the next year will be strong, normal, or weak, and he thinks that the firm's returns will have the probability distribution shown below. What's the expected return & standard deviation of the estimated returns? * Economic Probability Return Conditions Strong 0.55 0.45 Normal 0.35 0.2 Weak 0.1 -0.1 O A) 30.75%, 17.83% B) 0.1783; 0.3075 C) 3.07%; 3.18% O D) None of the above

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Felix is estimating the return for Togo Sledding and has determined the following probabilities and expected returns. Togo's expected return is closest to: Expected Probability Return Roaring expansion Steady high growth Steady moderate growth Slowing Recession 9% 17% 11% 14% 15% 8% 42% 3% 23% -5%
Suppose that the rate of return on the market portfolio is 8% and the risk-free rate is 1%. Con- sider a stock with B = 1.3. The firm is expected to have no earnings in the first year (E1 = 0), and then $10 earnings-per-share in the second year (E2 = 10). After that, earnings are expected to grow at a constant annual rate of 8%. The retention ratio is 80% in all periods. Round-up all your answers to 2 decimal places. А. Find the fundamental value of the stock today (t = 0). В. Suppose the company decided to pay out 40% of its earnings as dividends. What would be the fundamental value of the stock today (t = 0)?
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company. Year 1 $ 62.18 40.30 2.35 a. High target price b. Low target price Year 2 $67.29 43.18 2.58 Year 3- $74.18 39.27 2.73 Year 4 $78.27 46.21 High price Low price EPS Earnings are expected to grow at 9 percent over the next year. 6. What is the high target stock price in one year? 32.16. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. b. What is the low target stock price in one year? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. 2.890
Consider a position consisting of a $315,380 investment in Oracle Corporation (ORCL) and a $271,440 investment in NVIDIA Corporation (NVDA). Suppose that the daily volatilities of these two assets are 4.14% and 5.71% respectively and that the coefficient of correlation between their return is 0.6778. With an assumption that it follows the normally distributed returns, the 27-day 99% Value at Risk (VaR) for NVIDIA Corporation (NVDA) is closest to A. $187,355.52. B. $157,830.54. C. $124,900.63. D. $100,900.64.
Jill believes that economic conditions during the next year will be strong, normal, or weak, and she thinks that the firm's returns will have the probability distribution shown below. What's the standard deviation of the estimated returns? Economic Conditions Strong Normal Weak 19.55% 18.98% 19.37% 18.62% Probability 30% 40% 30% Return 34.0% 10.0% -15.0%
Engler Corporation's stock had a required return of 9.50% last year when the risk - free rate was 2.50% and the market risk premium was 5.00%. Then an increase in investor risk aversion caused the market risk premium to rise by 1% from 5.00% to 6.00%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? a. 10.40% b 10.90% с. 11.80% d. 12.50% e. 13.50%
If the economy booms, RTF, Incorporated, stock is expected to return 10 percent. If the economy goes into a recessionary period, then RTF is expected to only return 3 percent. The probability of a boom is 65 percent while the probability of a recession is 35 percent. What is the variance of the returns on RTF, Incorporated, stock?
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 33% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is U = E(r) Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign. - 0.5 × Ag². X Answer is complete but not entirely correct. WIndex U(A = 2) 0.0111 0.0504 0.0808 x 0.1026 0.1164 X 0.1200 X WBills 0.0 0.2 0.4 0.6 0.8 1.0 1.0 0.8 0.6 0.4 0.2 0.0
A manager believes his firm will earn a return of 12.50 percent next year. His firm has a beta of 1.40, the expected return on the market is 10.50 percent, and the risk-free rate is 3.50 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required return % Determine whether the manager is saying the firm is undervalued or overvalued. O overvalued O undervalued
2) Calculate the expected rate of return and standard deviation for a security with the following possible outcomes: State of the Economy Probability of State Return if State Occurs Depression 0.2 -5% Recession 0.4 3% Slow growth 0.3 7% Moderate growth 0.1 10%
Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 64% probability that the firm will have a 25% return and a 36% probability that the firm will have a -2% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in: a. 40 firms of type S? b. 40 firms of type l? a. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 40 firms of type S? Standard deviation is%. (Round to two decimal places.)
How can you work this out in Excel? Suppose that we have an investment with an annual return of 10% and an annual standard deviation of 25%. Over a one-year period, what range of returns can we expect with approximately 95% confidence? 1.-15.36% to 55.36% 2.5% to 45% 3.-23.45% to 56.78% 4. -40% to 60%

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