21. A stock market analyst observes the following for the price of two stocks that he owns, one of which is increasing at an exponential rate (geometric) and the other is increasing in alinear fashion (arithmetic).Stock A: Equation: an 15n + 143, where an is the value of the stock and n is the number of years.Year Price12345Year12Stock B: Equation: a = 24(1.1)”−¹, where an is the value of the stock and n is the number of years.34$158.005$173.00$188.00$203.00$218.00Price$24.00$26.40$29.04$31.94$35.14Assuming these stock values continue to increase in the same manner until retirement, which stock option is worth more in 50 years and how much more is this stock worth per share?

Data given: Stock A: Equation: an=15n+143 Stock B: Equation: an=24*(1.1)n-1

21. A stock market analyst observes the following for the price of two stocks that he owns, one of which is increasing at an exponential rate (geometric) and the other is increasing in a linear fashion (arithmetic). Stock A: Equation: an = 15n+ 143, where an is the value of the stock and n is the number of years. Year Price 1 2 3 4 5 1 Stock B: Equation: a = 24(1.1)”—¹, where an is the value of the stock and n is the number of years. Year Price 2 3 4 $158.00 $173.00 5 $188.00 $203.00 $218.00 $24.00 $26.40 $29.04 $31.94 $35.14 Assuming these stock values continue to increase in the same manner until retirement, which stock option is worth more in 50 years and how much more is this stock worth per sha

21. A stock market analyst observes the following for the price of two stocks that he owns, one of which is increasing at an exponential rate (geometric) and the other is increasing in a linear fashion (arithmetic). Stock A: Equation: an = 15n+ 143, where an is the value of the stock and n is the number of years. Year Price 1 2 3 4 5 1 Stock B: Equation: a = 24(1.1)”—¹, where an is the value of the stock and n is the number of years. Year Price 2 3 4 $158.00 $173.00 5 $188.00 $203.00 $218.00 $24.00 $26.40 $29.04 $31.94 $35.14 Assuming these stock values continue to increase in the same manner until retirement, which stock option is worth more in 50 years and how much more is this stock worth per sha

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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Consider the rate of return of stocks ABC and XYZ. Year 1 2 3 4 ABC XYZ ABC 22% 9 19 1 O ABC Ⓒ XYZ ABC XYZ Required: a. Calculate the arithmetic average return on these stocks over the sample period. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) XYZ 38% 11 19 -11 Arithmetic Average b. Which stock has greater dispersion around the mean return? c. Calculate the geometric average returns of each stock. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Expected rate of return 11.40 % 11.40 % Geometric Average Expected rate of return d. If you were equally likely to earn a return of 22%, 9%, 19%, 6%, or 1%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round Intermediate calculations. Round your answers to 2 decimal places.) e. What if the five possible outcomes were those of stock XYZ? (Do not round Intermediate calculations. Round your answers to 2…
Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period. A B C Po 82 42 84 00 100 200 200 Divisor P1 87 37 94 01 100 200 200 P2 87 37 47 92 100 200 400 Required: a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t=0 to t= 1). (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return I % b. What will be the divisor for the price-weighted index in year 2? (Do not round intermediate calculations. Round your answer to 2 decimal places.) D c. Calculate the rate of return of the price-weighted index for the second period (t=1 to t = 2).
1. If a stock has a(Alpha)=0.002, b(Beta)=1.4, Using the market model (eq. 7.4), find the expected percent return for the above stock if the market return is expected to be 2% and the risk free rate is 1%. 2. Assume stock prices follow a random walk and a particular stock has had the following recent stock prices: Day 1: 129.5 Day 2: 126.9 Day 3: 127.1 what is the best estimate of day 4 prices?
Consider three stocks, X, Y, and Z, in the following table. P0, P1, and P2 represent prices at time 0, 1, and 2. Q0, Q1, and Q2 represent shares outstanding. Stock Z splits two for one in the last period. Stocks PO Q0 P1 Q1 P2 Q2 ? X 90 100 95 100 95 100 Y 50 200 60 200 45 200 Z 100 200 110 200 55 400 Using the above information to compute an equally weighted average returns in the three stocks from periods 1 to 2 0% O-1.85% -8.33% -25.00%
A stock has had the following year-end prices and dividends: Year Price Dividend 1 $ 65.13 — 2 72.00 $ .76 3 77.80 .81 4 64.07 .87 5 74.71 .96 6 87.75 1.03 What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
You are given the returns for the following three stocks: Stock B Stock C Stock A 14.00% 14.00% -19.00% 14.00 14.00 34.00 14.00 22.00 37.00 14.00 14.00 14.00 4.00 Year 1 2 3 4 5 7.00 13.00 Calculate the arithmetic return, geometric return, and standard deviation for each stock. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Arithmetic return Standard deviation Geometric return Stock A 14.01 % 0.00 % 14.01 % Stock B 14.00 % 14.01 % Stock C 14.00 % 14.02 %
Consider the three stocks in the following table. P+ represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period. PO 98 58 100 51 103 e 200 116 200 53 126 100 200 200 103 100 53 63 200 400 Required: Calculate the first-period rates of return on the following indexes of the three stocks: (Do not round Intermediate calculations. Round your answers to 2 decimal places.) a. A market value-weighted Index Rate of return An equally weighted index ate of return % %
Assume that the risk-free rate is 2.5% and the market risk premium is 8%. What is the required return for the overall stock market? Round your answer to one decimal place. ? % What is the required rate of return on a stock with a beta of 0.5? Round your answer to one decimal place. ? % The above is a two part question, therefore the second answer is determined based off the first answer provided. Please, please, please do provide both answers.
Suppose a market consists of four stocks. The number of shares outstanding for each stock as well as the stock prices in two consecutive days are as follows: Stock A Stock B Stock C Stock D Shares outstanding 200 1000 400 3000 I $5 $30 $100 $40 Ро $15 $25 $80 $50 a) Compute the percentage increase in the price-weighted index for this market. b) Compute the percentage increase in the value-weighted index for this market. P₁
Consider the three stocks in the following table. Pt represents price at time t, Qt represents shares outstanding at time t. Stock C splits two for one in the second period from t=1 to t=2. Calculate the rate of return on a price-weighted index consisting of the three stocks for the first period from t=0 to t=1. Answer in percentage. Stock P0 Q0 P1 Q1 P2 Q2 A 70 475 75 475 75 475 B 45 850 40 850 40 850 C 50 300 60 300 30 600 a. 0.00% b. 2.49% c. 6.06% d. 8.95% e. 1.30%
Consider the following average annual returns for Stocks A and B and the Market. Which of the possible answers best describes the historical betas for A and B? Years Market Stock A Stock B 1 0.03 0.16 0.05 2 −0.05 0.20 0.05 3 0.01 0.18 0.05 4 −0.10 0.25 0.05 5 0.06 0.14 0.05 a. bA > +1; bB = 0. b. bA = 0; bB = −1. c. bA < 0; bB = 0. d. bA < −1; bB = 1. e. bA > 0; bB = 1.
Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for- one in the last period. P0 Q0 P1 Q1 P2 Q2 A 82 100 87 100 87 100 B 42 200 37 200 37 200 C 84 200 94 200 47 400 a. Calculate the rate of return on a price - weighted index of the three stocks for the first period (t = 0 tot = 1). b. What will be the divisor for the price - weighted index in year 2? c. Calculate the rate of return of the price - weighted index for the second period (t = 1 to t = 2). *note: Please explain why the reture rate for the second period is 0. Thanks!*

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