Consider the folloving scenario analysis: Rate of Return Scenario Recession Probability Stocks Bonds 194 0.20 -4 Normal economy Boom 0.40 204 268 9 0.40 a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? O No Yes O b. Calculate the expected rate of return and standard deviation for each investment. (Do not round Intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

Consider the folloving scenario analysis: Rate of Return Scenario Recession Probability Stocks Bonds 194 0.20 -4 Normal economy Boom 0.40 204 268 9 0.40 a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? O No Yes O b. Calculate the expected rate of return and standard deviation for each investment. (Do not round Intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

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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Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.30 -7% 18% Normal economy Boom 0.60 20% 0.10 26% 10% 3% a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? b. Calculate the expected rate of return and standard deviation for each investment. c. Which investment would you prefer? Complete this question by entering your answers in the tabs below. Required A Required B Required C Calculate the expected rate of return and standard deviation for each investment. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place. Expected Rate of Return Stocks 12.5% Bonds 11.7 % Standard Deviation % %
The payoff table below indicates the returns (in RM thousands) of investments in stock, bond and fixed deposit under different economic situations. Type of Investment Stock Bond Fixed Deposit Table 1 Economic Situation Good 150 50 45 Stable 60 40 45 Poor -30 36 45 The probabilities of good, stable and poor economy are 0.3, 0.5 and 0.2, respectively. What is the best investment based on the expected monetary value criterion? Draw a decision tree.
Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180 Repete Co. 1.39 0.153 What is the risk - free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Risk - free rate % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. % Repete Co. %
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Consider the following scenario analysis: Scenario Recession Normal economy Boom Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a. What is the rate of return on the portfolio in each scenario? b. What are the expected rate of return and standard deviation of the portfolio? Required A Probability 0.3 0.6 0.1 Required B Recession Normal economy Boom Rate of Return Complete this question by entering your answers in the tabs below. Stocks -5% 13 24 Rate of Return % % 15.6 % Bonds 12% 9 3 What is the rate of return on the portfolio in each scenario? Note: Enter your answer as a percent rounded to 1 decimal place.
Consider the following information: Probability of Rate of Return If State of Economy State of Economy State Occurs Recession Normal Boom .20 .45 .35 Expected return Calculate the expected return. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. -.14 .10 .36 %
Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession Probability 0.3 0.6 0.1 Mean Standard deviation HPR 24.90 % % 41% 24 E (r) E-1P(s)r (s) Var (r) = o² = s-1p(s)[r (s) - E(r)]² SD (r) = o = √Var (r) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculation Round your answers to 2 decimal places.) -18 K
Vijay
Suppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 6.1 percent and a standard deviation of 9.8 percent. What is the approximate probability that your return on these bonds will be less than −3.7 percent in a given year? Use the NORMDIST function in Excel® to answer this question. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What range of returns would you expect to see 95 percent of the time? Note: A negative answer should be indicated by a minus sign. Enter your answers from lowest to highest. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. What range would you expect to see 99 percent of the time? Note: A negative answer should be indicated by a minus sign. Enter your answers from lowest to highest. Do not round intermediate calculations and enter…
Consider the following information: State of Probability of Portfolio Return Economy State of Economy If State Occurs Recession <- Boom 21 .79 Expected return 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.) 11 .21 %
Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession E (r) = Σs=1 P(s)r(s) Var (r) = ² = Probability 0.3 0.4 0.3 Σs ₁ p (s)[r (s)- E (r)]² HPR 44% 14 -16 SD (r) = 0 = Var (r) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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

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