AProblem 13-5 Calculating Expected Return [LO1]Consider the following information:State of EconomyRecessionBoomProbability ofPortfolioState ofReturn if StateOccurs-.20.28Economy.35.65Calculate the expected return. (Do not round intermediate calculations and enter youranswer as a percent rounded to 2 decimal places, e.g., 32.16.)Expected returnt]nces%

EXPLANATION:GIVEN:- Probability of recession (State of Economy): 0.35Probability of boom economy…

Answered: A Problem 13-5 Calculating Expected…

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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State of the economy Boom Bust 0.05 0.02 You MUST use 4 digits in every calculation you do in order for your answer to be the same as the one in the system. When entering your answer, round to the nearest 0.01% but do not enter the % sign. For example, if your answer is 3.484% enter 3.48; if your answer is 0.12013 then enter 12.01 What is the expected return of a portfolio with 20% in asset A and 80% in Asset B? What is the variance of the portfolio with 20% in asset A and 80% in Asset B? Prob. of the state of economy 0.75 0.25 Rate of return if state occurs Stock A Stock B 0.15 0.02
Problem 13-5 Calculating Expected Return [LO1] Consider the following information: State of Economy Recession Boom Probability of State of Expected return Economy 34 66 Calculate the expected return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Portfolio Return if State Occurs -.19 27 % C
LO 5 Book Ms Based on the following information: State of Economy Depression Recession Normal Boom Probability of State of Economy 0.13 0.22 0.47 0.18 You received partial credit in the previous attempt. Rate of Return if State Occurs -0.108 0.056 0.127 0.208 Calculate the expected return. (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected return 9.54% Calculate the standard deviation. (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Standard deviation 5.58% m
Problem 13-18 Optimal Sharpe Portfolio Value-at-Risk (LO3, CFA6) You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 10 percent and 13 percent. respectively. The standard deviations of the assets are 32 percent and 40 percent, respectively. The correlation between the two assets is 47 and the risk-free rate is 3.6 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 16 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places and the z-score value to 3 decimal places when calculating your answer. Enter your smallest expected loss as a percent rounded to 2 decimal places.) Sharpe ratio Smallest expected loss %
Problem 3-14 Sustainable Growth [LO 3] Assume the following ratios are constant. Total asset turnover Profit margin Equity multiplier Payout ratio = Sustainable growth rate = = = 2.28 5.6% 1.75 What is the sustainable growth rate? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 37% %
Problem 10-11 Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Risk Premium 6% 2% 5% Factor Industrial production (I) Interest rates (R) Consumer confidence (C) The return on a particular stock is generated according to the following equation: r=15% +1.4/+0.7R+0.90C+ e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 7%. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Equilibrium rate of return a-2. Is the stock over- or underpriced? O Underpriced Overpriced %
F1
Sh 20
QUESTION 40 The potential losses are sorted in the following table. The absolute VaR is £8 Million. What is the relative expected shortfall from the mean? Sorted returns Returns (£ Million) -12 -10 -8 -6 -4 -3 -1.5 OA. 4.64 B.-11 C.-6.36 D.2.64
INV2 P1 3 You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.10 0.55 0.35 Return on P -15% 20% 40% The risk-free rate is currently 4%, and the market portfolio M has an expected return of 16% and standard deviation of 20%, and its correlation with P is .7. Does portfolio P have a positive or negative alpha relative to its required return given its level of risk?
None
INV2 P1 3b You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.10 0.55 0.35 Return on P -15% 20% 40% The risk-free rate is currently 4%, and the market portfolio M has an expected return of 16% and standard deviation of 20%, and its correlation with P is .7. Would you characterize P as a buy or sell and why?

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