A stock's returns have the following distribution: Demand for the Company's Products Weak Probability of this Demand Occurring Rate of Return if this Demand Occurs 0.1 (30%) Below average 0.1 (15) Average 0.4 16 0.3 0.1 22 63 1.0 Above average Strong Assume the risk-free rate is 4%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places. Stock's expected return: Standard deviation: % % Coefficient of variation: Sharpe ration

A stock's returns have the following distribution: Demand for the Company's Products Weak Probability of this Demand Occurring Rate of Return if this Demand Occurs 0.1 (30%) Below average 0.1 (15) Average 0.4 16 0.3 0.1 22 63 1.0 Above average Strong Assume the risk-free rate is 4%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places. Stock's expected return: Standard deviation: % % Coefficient of variation: Sharpe ration

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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A stock's returns have the following distribution: Demand for theCompany's Products Probability of thisDemand Occurring Rate of Return ifthis Demand Occurs Weak 0.1 (22%) Below average 0.2 (13) Average 0.3 17 Above average 0.3 39 Strong 0.1 64 1.0 Assume the risk-free rate is 2%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places. Stock's expected return: % Standard deviation: % Coefficient of variation: Sharpe ratio:
Which of the following will (holding everything else constant) cause the price earnings (P/E) ratio of a stock to decrease: The required return increases The risk-free rate decreases The stock's beta decreases The required return decreases
You've estimated the following expected returns for a stock, depending on the strength of the economy: State (s) Probability Expected return Recession 0.1 -0.05 Normal 0.5 0.06 Expansion 0.4 0.11 What is the expected return for the stock? What is the standard deviation of returns for the stock?
Consider the following information about Stocks I and II: Rate of Return if State Occurs Probability of State of State of Economy Recession Economy Stock I Stock Il .25 .06 -.30 Normal .45 .18 .06 Irrational exuberance .30 .12 .45 The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.) The standard deviation on Stock I's return is deviation on Stock II's return is stock's systematic risk/beta, Stock percent, and the Stock I beta is percent, and the Stock II beta is . The standar Therefore, based on the is "riskier".
Based on the following information, calculate the expected return and standard deviation for Stock A and Stock B. Input area: State Probability Stock A Stock B Recession 0.15 0.04 (0.17) Normal 0.55 0.09 0.12 Boom 0.30 0.17 0.27 (Use cells A6 to D9 from the given information to complete this question.) Output area: Stock A Probability Return Product Return deviation Squared deviation Product Recession Normal Boom B э O Standard deviation Stock B 2 Recession 3 Normal 4 Boom 5 26 Standard Deviation 27 28 E(R) Variance Probability Return Product Return deviation Squared deviation Product E(R) Variance
A stock's returns have the following distribution: Standard deviation: Coefficient of variation: Sharpe ratio: % Demand for the Company's Products Weak Below average % Average Above average Strong Probability of this Demand Occurring Assume the risk-free rate is 3%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places. Stock's expected return: 0.1 0.1 0.4 0.3 0.1 1.0 Rate of Return if this Demand Occurs (38%) (11) 15 23 56
Consider the following information on Stocks I and II: State of Economy Recession Normal Irrational exuberance Probability of State of Economy .30 .40 .30 Rate of Return If State Occurs The standard deviation of Stock I's expected return is percent, and the Stock II beta is Stock I .10 .17 .11 The market risk premium is 8 percent, and the risk-free rate is 3 percent. Note: Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16. Stock II -.25 .12 .45 percent, and the Stock I beta is is "riskier". Therefore, Stock Il The standard deviation of Stock Il's exp
Based on the CAPM model, a stock with a negative beta has which of the following characteristics? A. An expected return less than zero. B. An expected return equal to the risk-free rate. C. Since these are so rare, the CAPM model does not account for negative beta stocks. D. An expected return less than the risk-free rate.
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta Factor Risk Premium Inflation 1.1 9% Industrial production 0.7 11 Oil prices 0.3 7 Required: If T - bills currently offer a 6% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. Suppose that the market expects the values for the three macro factors given in column 1 below, but that the actual values turn out as given in column 2. Calculate the revised expectations for the rate of return on the stock once the "surprises" become known. Factor Expected Value Actual Value Inflation 7 % 3% Industrial production 6 7 Oil prices 4 0 Note: For all requirements, do not round intermediate calculations. Round your answers to 1 decimal place.
What is a stock's realized abnormal return if the stock had a 3% return and the stock had a Beta=1.24, an Alpha=0 and the excess market return was 3.3%. assume the risk free rate is 0%. Please write negative returns using the "-" symbol, so a negative 1% return would be written as -.01

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