Consider the following information: State ofEconomyProbability ofState of EconomyRate of Returnif State Occurs Recession.37−.11 Boom.63 .23 Calculate the expected return.

The expected return is the rate of return an asset generates after taking probabilities of different…

Answered: Consider the following information:…

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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The rate of return on the common stock of Kang Distribution is expected to be 13.5 percent in a boom economy, 8 percent in a normal economy, and only 2.5 percent in a recessionary economy. The probabilities of these economic states are 11 percent for a boom and 26 percent for a recession. What is the variance of the returns on this common stock?
Calculate the 1. payback period, 2. the net present value to the nearest whole dollar (for example 4500), 3. the internal rate of return to the nearest whole percentage (for example 12), and 4. the modified internal rate of return (to the nearest whole percent, for example 12) Period OH 0 1 2 3 4 5 CF -100,000 25000 50000 50000 3000 1000 WACC 0.125 2 A N A/
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The following information relates to the possible returns of ABC limited share depending on the performance of the economy: State of the economy Probability of the returns Return Boom 0.4 20% Normal 0.4 15% Recession 0.2 9% Required: i. Compute the expected return of the share ii. Compute the standard deviation and coefficient of variation of the share.
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 %
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Consider the following information: Rate of Return. If State Occurs State of Economy Recession Normal Boom Probability of State of Economy 24 45 .31 -.09 11 30 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.) Expected return %
In an inflationary period, what is the difference between (a) inflated dollars and “then-current” future dollars, and (b) “then-current” future dollars and constant-value future dollars?
State of Economy Bust Boom State of Economy Roll Bust Boom Ross Bust Boom Calculate the standard deviations for Roll and Ross by filling in the following table: (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.) Probability of State of Economy Probability of State of Economy .50 .50 .50 .50 .50 .50 Return Deviation from Expected Return -0.1950 0.2000 Security Returns if State Occurs 0.0600 -0.0600 Roll -14% 25 Squared Return Deviation 0.0380 0.0380 0² = Ross (0.0036) 0.0036 0²= 18% 6 Product 19.5000 0.0600
None
Consider the following information: Rate of Return Probability of State State of if State Economy Recession of Economy .25 Occurs -.09 Normal .45 11 Вoom .30 .30 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.) Expected return %

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State of Economy	Probability of State of Economy	Rate of Return if State Occurs
Recession	.37	−.11
Boom	.63	.23

Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Recession .37 −.11 Boom .63 .23 Calculate the expected return.