Consider the following information: State of Economy Probability of State of Economy Boom Bust .67 .33 .10 .24 .04 .30 Rate of Return if State Occurs Stock A Stock B Stock C .35 -.15 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 22 percent each in A and B and 56 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. Answer is complete but not entirely correct. a. Expected return b. Variance of portfolio 11.90% 0.01247 X

Consider the following information: State of Economy Probability of State of Economy Boom Bust .67 .33 .10 .24 .04 .30 Rate of Return if State Occurs Stock A Stock B Stock C .35 -.15 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 22 percent each in A and B and 56 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. Answer is complete but not entirely correct. a. Expected return b. Variance of portfolio 11.90% 0.01247 X

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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Stocks A and B have the following probability distributions of expected future returns: a. Calculate the expected rate of return, B, for Stock B (A = 12.50%.) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the standard deviation of expected returns, GA, for Stock A (σ = 20.90%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? I. If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. II. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. III. If Stock B is less highly correlated with…
Consider the following information: State of Economy Boom Bust Probability of State of Economy a. Expected return b. Variance .60 .40 Rate of Return if State Occurs % Stock A Stock B .23 .08 .15 .18 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the variance of a portfolio invested 24 percent each in A and B and 52 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) Stock C .42 -.09
Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .17 .08 −.12 Normal .58 .11 .17 Boom .25 .16 .34 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 intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Boom .12 Normal Bust .33 Stock A Rate of Return .07 .16 Stock B Rate of Return .32 .27 -.26 Stock Rate of Return .45 .25 -.35 a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return, the variance, and the standard deviation ? Note: Do not round intermediate calculations . Round your variance answer to 5 decimal places, e.g., .16161. Enter your other answers as a percent rounded to 2 decimal places , e.g., 32.16. bIf the expected T-bill rate is 4.5 percent, what is the expected risk premium on the portfolio ? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16 . % a. Expected return Variance Standard deviation % b. Expected risk premium %
Consider the following information: State of Economy Probability of State of Economy Boom Bust .68 :32 a. Expected return b. Variance of portfolio Rate of Return if State Occurs Stock A Stock B Stock C .11. .15 .05 .21 .26 -.06 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 23 percent each in A and B and 54 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.
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".
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. % % %
Consider the following information: State of Economy Probability of State of Economy Boom Bust .72 .28 a. Expected return b. Variance of portfolio Rate of Return if State Occurs Stock A Stock B .04 .25 13.73 % .10 .19 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 27 percent each in A and B and 46 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. Stock C .30 -.10
Consider the following information: Probability of State of Economy .20 .60 .20 Economy Recession Normal Boom Rate of Return if State Occurs Stock A Stock B .035 .115 .290 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. 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. a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B do do do do % % % % -.40 .30 .53
Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Stock A Rate of Return Stock B Rate of Return Stock C Rate of Return Boom.13.02.32.50 Normal.55.10.22.20 Bust .32.16.21.35 If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return, the variance, and the standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your other answers as a percent rounded to 2 decimal places, e. g., 32.16. If the expected T-bill rate is 4.25 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.
You have been given the following information: State of Economy Recession Normal Boom Probability of State of Economy .17 .58 .25 Rate of Return if State Occurs a. Stock A expected return a. Stock B expected return b. Stock A standard deviation b. Stock B standard deviation Stock A .08 .11 16 a. Calculate the expected return for the two stocks. (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 the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Stock B -.12 .17 .34 % % % %
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Boom Bust .66 .34 Stock A .09 .23 Stock B .03 Stock C .34 .29 -.14 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 21 percent each in A and B and 58 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. a. Expected return b. Variance of portfolio 14.43 %

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