E Consider the following information: Probability of Rate of Return if State Occurs Economy Recession State of Economy Stock A Stock B .22 .045 -.42 Normal Boom .62 .16 .125 .310 32 .55 a. Calculate the expected return for the two stocks. Note: Do not round Intermedlate 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. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B 56 96 96 96

E Consider the following information: Probability of Rate of Return if State Occurs Economy Recession State of Economy Stock A Stock B .22 .045 -.42 Normal Boom .62 .16 .125 .310 32 .55 a. Calculate the expected return for the two stocks. Note: Do not round Intermedlate 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. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B 56 96 96 96

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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am. 123.
State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .15 .04 −.17 Normal .55 .09 .12 Boom .30 .17 .27 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.)
Expected Returns: Discrete Distribution The market and Stock J have the following probability distributions: Probability rM rJ 0.3 15% 20% 0.4 9 7 0.3 18 10 Calculate the expected rates of return for the market and Stock J. Round your answers to one decimal place. Expected rate of return (Market): % Expected rate of return (Stock J): % Calculate the standard deviations for the market and Stock J. Do not round intermediate calculations. Round your answers to two decimal places. Standard deviation (Market): % Standard deviation (Stock J): %
Stocks A and B have the following probability distributions of expected future returns: a. Calculate the expected rate of return, TB, for Stock B (A = 13.80%.) Do not round intermediate calculations. Round your answer to two decimal places. % Probability 0.1 0.1 0.5 0.2 0.1 b. Calculate the standard deviation of expected returns, JA, for Stock A (OB = 20.40%.) Do not round intermediate calculations. Round your answer to two decimal places. % -Select- A (11%) 6 13 20 38 Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. B (34%) 0 24 30 44 Is it possible that most investors might regard Stock B as being less risky than Stock A? I. If Stock B is less 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 less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be…
Use the following information on states of the economy and stock returns to calculate the expected return and the standard deviation of returns. Assume that all three states are equally likely. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. State of Economy Recession Normal Boom Expected return Standard deviation Security Return if State Occurs -9.00% 15.00 24.00 % %
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (10 %) (34 %) 0.2 4 0 0.4 14 23 0.2 18 28 0.1 30 39 Calculate the expected rate of return, , for Stock B ( = 12.00%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 20.05%.) 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. Assume the risk-free rate is 3.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places. Stock A: Stock B:
Consider the following information: State of Economy Boom Bust Probability of State of Economy .75 .25 a. Expected return b. Variance of a portfolio Rate of Return if State Occurs. Stock C .27 -.21 Stock A .07 .12 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 20 percent each in A and B and 60 percent in C? Note: Do not round intermediate calculations and round your answer to 6 decimal places, e.g...161616. Stock B .18 -.08 %
1. Assume a two-factor model explains stock returns. Regression estimates of stocks A and B on the two factors are given below. Stock B, B, A 1.2 -0.5 4 в 3.5 -0.8 2.0 3 Assume further that factor one has expected return of 10 and standard deviation of 8. Factor two has expected return of 5 and standard deviation of 6. a) Calculate expected returns for A and B. b) Calculate standard deviations for A and B. c) Calculate expected return on a portfolio that invests 60% in A and 40% in B.
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession 21 .06 21 Normal 58 109 08 Boom 21 14 25 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 Intermedlate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Stock A expected return a. Stock B expected return b. Stock A standard deviation b. Stock B standard deviation 196 96 96 %
Consider the following information: Probability of State of Economy .22 .57 .21 Economy Recession Normal Boom 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 .020 .100 160 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. % % -.27 .17 .40 % %
Consider the following information: State of Economy Recession. Normal Boom Probability of State of Economy .17 .58 .25 Rate of Return if State Occurs Stock A Stock B .08 -.12 11 .17 .34 a. Stock A expected return a. Stock B expected return b. Stock A standard deviation b. Stock B standard deviation 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.) .16 Answer is complete but not entirely correct. 9.86 % 21.46 % 7.70 % 9.50 %

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