Consider the following scenario analysis:Rate of ReturnScenarioRecessionProbabilityStocksBonds0.20-6%18%Normal economyBoom0.5019%11%0.3026%8%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 ARequired BRequired CCalculate 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 ofStandard DeviationReturnStocksBonds%%%%< Required ARequired C >

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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 % %
Historical Returns: Expected and Required Rates of Return You have observed the following returns over time: Assume that the risk-free rate is 5% and the market risk premium is 4%. a. What are the betas of Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. % Year 2017 2018 2019 2020 2021 % Stock X 12% 17 -13 2 22 % Stock Y 15% 7 -4 3 12 Stock X: Stock Y: b. What are the required rates of return on Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. Stock X: Stock Y: c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Do not round intermediate calculations. Round your answer to two decimal places. Market 13% 12 -10 2 15
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.
The expected returns of a portfolio are influenced by several factors that investors should consider whenconstructing and managing their investment portfolios. discussesthe factors that affect expected returns of a portfolio.
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Consider the following scenario analysis: Rate of Return Stocks Scenario Bonds Probability 0.20 Recession -6% 18% Normal economy 0.50 19% 11% Boom 0.30 26% 8% a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? O No Ⓒ Yes 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.) Expected Rate of Standard Deviation Return Stocks 16.1 % % Bonds 9.7 % % c. Which investment would you prefer? Bond Which investment would you prefer? Stock
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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 scenario analysis: Scenario Recession Normal economy Boom Probability 0.20 0.60 0.20 Rate of Return Stocks -7% 22% 33% 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? Required A Required B Required C Bonds 20% 11% 7% Complete this question by entering your answers in the tabs below. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? Required A Required B >
Consider the following scenario analysis: Scenario Recession Normal economy Boom. Probability 0.20 Stocks Bonds 0.60 0.20 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? Expected Rate of Return 1.3% 0.8 % 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. Rate of Return. Bonds 14% 8% 4% Standard Deviation Stocks -5% 15% 25% 15.3 Answer is complete but not entirely correct. % 8.1 % Dequired A Required
Consider the following scenario analysis: Scenario Recession Normal economy Boom Required A Probability 0.3 0.4 0.3 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? Rate of Return Stocks Bonds 12% 7 3 Complete this question by entering your answers in the tabs below. Required B Expected return Standard deviation -4% 13 22 What are the expected rate of return and standard deviation of the portfolio? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places % %

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