4. Based on the following information Calculate Rate of Return if State Occurs Stock B State of Economy Probability of State of Economy Stock A Recession 0.20 0.05 -0.17 Normal 0.55 0.08 0.12 Вoom 0.25 0.13 0.29
4. Based on the following information Calculate Rate of Return if State Occurs Stock B State of Economy Probability of State of Economy Stock A Recession 0.20 0.05 -0.17 Normal 0.55 0.08 0.12 Вoom 0.25 0.13 0.29
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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4. Based on the following information Calculate
State of Economy
Probability of State of Economy
Rate of Return if State Occurs
Stock A
Stock B
Recession
0.20
0.05
-0.17
Normal
0.55
0.08
0.12
Вoom
0.25
0.13
0.29
a) The expected return of Stock A
b) The expected return of Stock B
c) The expected return of Portfolio where you invest $35,000 in Stock A and $45,000 in Stock B
d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.3. If you invest $35,000 in Stock A
and $45,000 in Stock B, what is the beta of this portfolio?
e) Expected return on the market (RM) is 10% and the risk-free (r;) is 4%. What must the the
expected return on the portfolio according to CAPM? (Use the beta you have calculated in section d)
for CAPM)
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