Calculate the correlation coefficient (PAB) for the following situation: (Round intermedi decimal place, e.g. 0.2921.) State of the Probability of Expected return on Expected return on economy occurrence stock A in this state stock B in this state High growth 30% 39.5% 56.5% Moderate 25% 18.5% 26.5% Recession 45% -6.5% -16.5% Correlation coefficient

Calculate the correlation coefficient (PAB) for the following situation: (Round intermedi decimal place, e.g. 0.2921.) State of the Probability of Expected return on Expected return on economy occurrence stock A in this state stock B in this state High growth 30% 39.5% 56.5% Moderate 25% 18.5% 26.5% Recession 45% -6.5% -16.5% Correlation coefficient

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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Following are four economic states, their likelihoods, and the potential returns: Probability 0.22 Economic State Fast growth Slow growth Recession Depression 0.52 0.19 0.07 Expected return Standard deviation Compute the expected return and standard deviation. Note: Do not round intermediate calculations and round your answers to 2 decimal places. Return 76% 18 -18 -52 % %
2
Using the following information, calculate the expected return and the standard deviation of Metlock. (Round intermediate calculations to 4 decimal places, e.g. 15.2564 and the final answers to 2 decimal places, e.g. 15.25%.) State of the Metlock stock economy Probability return (%) Depression 0.10 -4.9 Recession 0.15 1.0 Normal 0.40 5.9 Boom 0.35 17.9 Expected return Standard deviation % di do %
Forecasted returns for Stock A: State of the Economy Prob. of State Return in State Prosperity 35% 5% Normal 45% 14% Recession 20% -3% What is the standard deviation of the stock’s returns?
Consider the following information: Economy Recession Normal Boom Probability of State of Economy .21 .56 .23 Rate of Return if State Occurs Stock A Stock B a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B .015 .095 .250 a. Calculate the expected return for the two stocks. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. -.36 .26 .49 b. Calculate the standard deviation for the two stocks. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. % % %
Use the following output from a market model regression of the weekly percentage returns on the AIG commodities index on a market index to answer questions a. - f. a. What is the formula for the Commodities Index' characteristic line? b. You forecast a market return of 1.0% for next week. What is next week's expected return for the commodities index? c. What is the correlation between the return on the commodities index and the return on the market Index? d. How much of the variation in the commodities index's returns are explained by the model? e. Based on these regression results, the commodities index would be considered what kind of an investment? f. Does this regression have much explanatory power? Why or why not?
View Policies Current Attempt in Progress Calculate the correlation coefficient (PA) for the following situation: (Round intermediate calculations and the final answer to 4 decimal place, e.g. 0.2921.) State of the economy High growth Moderate Recession Probability of Expected return on occurrence stock A in this state 47.0% 26.0% -14.0% 25% 20% 55% Correlation coefficient Expected return on stock B in this state 64.0% 34.0% -24.0%
Based on the following information, what is the standard deviation of returns? Probability of State of Economy Rate of Return if State of Economy State Occurs Recession .24 -.092 Normal .45 .107 Boom .31 .217
Following are four economic states, their likelihoods, and the potential returns: Economic State Probability 0.31 0.50 0.16 0.03 Fast growth Slow growth Recession Depression Compute the expected return and standard deviation. (Do not round intermediate calculations and round your answers to 2 decimal places.) Expected return Standard deviation Return 78% 15 -18 -49 % %
Calculate the correlation coefficient (PAB) for the following situation: (Round intermediate calculations and the final answer to 4 decimal place, e.g. 0.2921.) State of the economy High growth Moderate Recession Probability of occurrence 25% 20% 55% Correlation coefficient Expected return on stock A in this state 44.0% 23.0% -11.0% Expected return on stock B in this state 61.0% 31.0% -21.0%
The expected market return and risk for different assumptions about the state of the economy is shown below. State of Economy Probability of State Expected Market Return Fast growth 0.11 35% Slow growth 0.50 16% No growth 0.20 5% Recession 0.15 -22% Depression 0.04 -32% Compute the expected return and standard deviation. Note: Round your answers to 2 decimal places. Compute the expected return and risk for the following 2 scenarios: Note: Round your answers to 2 decimal places. Scenario 1: State of Economy Probability of State Expected Market Return Fast growth 0.09 38% Slow growth 0.33 16% No growth 0.36 2% Recession 0.19-18% Depression 0.03 -32% Scenario 2: State of Economy Probability of State Expected Market Return Fast growth 0.16 40% Slow growth 0.31 13% No growth 0.38 2% Recession 0.12-17% Depression 0.03 -33%
Problems BETA COEFFICIENTS AND RATES OF RETURN You are given the following set of data: 8A-1 Historical Rates of Return (r) Stock Y(F,) NYSE (F.) Year 1 3.0% 4.0% 18.2 14.3 9.1 19.0 (6.0) (14.7) (15.3) (26.5) 33.1 37.2 7 6.1 23.8 3.2 (7.2) 9. 14.8 6.6 10 24.1 20.5 11 18.0 30.6 Mean 9.8% 9.8% 13.8 19.6 d. Suppose the regression line had been downward sloping and the beta coefficient had been negative. What would this imply about (1) Stock Y's relative riskiness and (2) its probable risk premium? e. Construct an illustrative probability distribution graph of returns (see Figure 8.3) for portfolios consisting of (1) only Stock Y, (2) 1% each of 100 stocks with beta coefficients similar to that of Stock Y, and (3) all stocks (i.e., the distribution of returns on the market). Use as the expected rate of return the arithmetic mean as given previously for both Stock Y and the market, and assume that the distributions are normal. Are the expected returns "reasonable"; that is, is it reasonable…

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