Consider the rate of return of stocks ABC and XYZ.Year1234ABCXYZABC22%9191O ABCⒸ XYZABCXYZRequired:a. Calculate the arithmetic average return on these stocks over the sample period. (Do not round Intermediate calculations. Roundyour answers to 2 decimal places.)XYZ38%1119-11ArithmeticAverageb. 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 decimalplaces.)Expected rate of return11.40 %11.40 %GeometricAverageExpected rate of returnd. 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 2decimal places.)f. Given your answers to (o) and (e), which measure of average return, arithmetic or geometric, appears more useful for predictingfuture performance?

Arithmetic average is the simple mean and can be found as the sum of all and divided by total…

ABC XYZ 11.40 11.40 b. Which stock has greater dispersion around the mean return? ABC .XYZ c. Calculate the geometric average returns of each stock. (Do not round Intermediate calculations. Round your answers to 2 dec places.) ABC XYZ Geometric Average

ABC XYZ 11.40 11.40 b. Which stock has greater dispersion around the mean return? ABC .XYZ c. Calculate the geometric average returns of each stock. (Do not round Intermediate calculations. Round your answers to 2 dec places.) ABC XYZ Geometric Average

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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Question

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
decimal places.)
f. Given your answers to (o) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting
future performance?

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8. (Portfolio of two stocks) The following spreadsheet presents data for stocks A and B. A B C 1 2 RETURN STATISTICS OF STOCKS A AND B Stock A Stock B 3 Average return 15% 10% 4 Variance 0.12 0.07 5 Standard deviation 34.64% 26.46% 6 7 Covariance of return, Cov(AIB) 0.0160 0.1746 <=B7/(B5*C5) a. 8 Correlation of return What are the return and the standard deviation of a portfolio com- posed of 30% of stock A and 70% of stock B? b. What are the return and the standard deviation of an equally weighted portfolio of stocks A and B?
What is the expected return of Stock B given the information below about its returns across future states of nature? Enter return in decimal form, rounded to 4th digit, as in "0.1234"
А ABC Po 91 51 102 Rate of return Q0 100 200 200 P1 96 46 112 Rate of return 3.78 % b. An equally weighted index 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 91 100 200 200 % P2 96 46 56 92 100 200 400
pm.3
Use the portion of the stock table shown below to answer the questions that follow. Round dollar amounts to the nearest cent, if necessary. YTD %CHG 52- HI Week LO STOCK DIV YLD % VOL 100s CLOSE NET CHG 2.8 37.43 21.10 A1 0.99 3.7 789 27.02 –0.1 2.4 48.30 30.78 B1 ... 1303 41.68 0.4 If you purchased 400 shares of B1 stock at $45.03, what would the loss be if the shares were sold at the closing price indicated in the table.
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession 21 .06 21 Normal 58 109 08 Boom 21 14 25 a. Calculate the expected return for Stocks A and B. (Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for Stocks A and B. (Do not round Intermedlate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Stock A expected return a. Stock B expected return b. Stock A standard deviation b. Stock B standard deviation 196 96 96 %
The market and Stock J have the following probability distributions: Probability rM rJ 0.3 15.00 % 19.00 % 0.4 10.00 6.00 0.3 18.00 10.00 The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet Calculate the expected rate of return for the market. Do not round intermediate calculations. Round your answer to two decimal places.fill in the blank %Calculate the expected rate of return for Stock J. Do not round intermediate calculations. Round your answer to two decimal places.fill in the blank % Calculate the standard deviation for the market. Do not round intermediate calculations. Round your answer to two decimal places.fill in the blank %Calculate the standard deviation for Stock J. Do not round intermediate calculations. Round your answer to two decimal places.fill in the blank %
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Intro We know the following expected returns for stocks A and B, given different states of the economy: State (s) Probability E(rA.s) E(rB,s) -0.1 0.04 0.08 0.05 0.13 0.07 Recession 0.2 Normal 0.5 Expansion 0.3 Part 1 What is the expected return for stock A? 3+ decimals Submit

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