3. ProBE8.12 (Required Rate of Return)eBook8Suppose TRF = 3%, TM = 9%, and b; = 1.4.a. What is ri, the required rate of return on Stock i? Round your answer to one decimal place.%b. 1. Now suppose TRF increases to 4%. The slope of the SML remains constant. How would this affect rm and ri?I. TM will remain the same and r₁ will increase by 1 percentage point.II. rm will increase by 1 percentage point and ri will remain the same.III. Both rm and rì will decrease by 1 percentage point.IV. Both rm and r₁ will remain the same.V. Both rm and r will increase by 1 percentage point.-Select-Problem Walk-Through2. Now suppose TRF decreases to 2%. The slope of the SML remains constant. How would this affect rm and r₁?I. rm will remain the same and r; will decrease by 1 percentage point.II. Both rm and n will increase by 1 percentage point.III. Both rm and r will remain the same.IV. Both rm and r; will decrease by 1 percentage point.V. rm will decrease by 1 percentage point and r; will remain the same.-Select-c. 1. Now assume that TRF remains at 3%, but r increases to 10%. The slope of the SML does not remain constant. How would these changes affect r₁? Round your answer to one decimal place.The new r will be%.2. Now assume that TRF remains at 3%, but rM falls to 8%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place.The new r will be%.

Risk-free rate =3%Rm=9%Beta = 1.4

eBook Ippose TRF = 3%, TM = 9%, and b; = 1.4. a. What is r, the required rate of return on Stock i? Round your answer to one decimal place. % b. 1. Now suppose TRF increases to 4%. The slope of the SML remains constant. How would this affect rm and r? I. TM will remain the same and r, will increase by 1 percentage point. II. ™M will increase by 1 percentage point and r will remain the same. III. Both rm and n will decrease by 1 percentage point. IV. Both rm and r, will remain the same. V. Both rm and r will increase by 1 percentage point. a -Select- A Problem Walk-Through Mai the CML affestu

eBook Ippose TRF = 3%, TM = 9%, and b; = 1.4. a. What is r, the required rate of return on Stock i? Round your answer to one decimal place. % b. 1. Now suppose TRF increases to 4%. The slope of the SML remains constant. How would this affect rm and r? I. TM will remain the same and r, will increase by 1 percentage point. II. ™M will increase by 1 percentage point and r will remain the same. III. Both rm and n will decrease by 1 percentage point. IV. Both rm and r, will remain the same. V. Both rm and r will increase by 1 percentage point. a -Select- A Problem Walk-Through Mai the CML affestu

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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Required Rate of Return Suppose rRF = 3%, rM = 8%, and rA = 7%. Calculate Stock A's beta. Round your answer to one decimal place. If Stock A's beta were 1.1, then what would be A's new required rate of return? Round your answer to one decimal place. %
What is the reward-to-risk ratio for Stock X, in decimal form? Round your answer to 4 decimal places (example: if your answer is .03579, you should enter .0358). Margin of error for correct responses: +/- .0005. expected return (implied by market price) Beta Stock X 9.6% 1.46 S&P500 12% ? T-bills 4% ?
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
Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal growth Recession Probability Ending Price 0.21 $ 140 0.30 110 0.49 80 Use the equations E (r) = Ep (s) r(s) and o² = Ep (s) [r(s) - E(r)]² to compute the mean and standard deviation of the HPR on S S HPR (including dividends) 50.5% 18.0 -12.5 stocks. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Mean Standard deviation Answer is complete but not entirely correct. 13.65 % 20.48 %
IBM AMZN E(R) 0.07 0.11 Standard Deviation0.10 0.18 Correlation0.45 Suppose you have the above data on IBM and Amazon, compute the expected return and the standard deviation of an equally weighted portfolio invested in the two securitiesis there a diversification benefit? Please show your work and round to at least 3 decimal places
Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 22 % 34 % 2 12 12 3 14 18 4 7 0 5 1 −8 1. If you were equally likely to earn a return of 22%, 12%, 14%, 7%, or 1%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) 2. What if the five possible outcomes were those of stock XYZ? 3. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? A. Arithmetic B. Geometric
You are given the following expected returns for a share under various scenarios. Scenario Probability Expected returnBoom16 % 34.6%Normal41 % 4.4% Recession 43% - 5.2% Calculate the expected return as a percent. Please enter the number as a percentage without the % sign (as you do for the interest rate in the calculator). For example, if your answer is 7.89%, then simply answer "7.89".
Suppose that the borrowing rate that your client faces is 8% Assume that the equity market index has an expected return of 12% and standard deviation of 28%, that ry - What is the range of risk aversion for which a client will neither borrow nor lend, that is, for which y-1? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. y=1 for SAS
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
Consider the following returns and states of the economy for TZ.Com.: Economy ProbabilityReturn Weak 15% Normal 50% Strong 35% -9% 2% 6% What is the standard deviation of TZ's returns? SET YOUR CALCULATOR TO FOUR DECIMAL PLACES AND ROUND TO 2 DECIMAL PLACES AT THE END. DO NOT ENTER THE %. FOR EXAMPLE, IF YOUR ANSWER IS 7.7011% ENTER IT AS 7.70.
You are evaluating a company's stock. The stock just paid a dividend of $1.75. Dividends are expected to grow at a constant rate of 5 percent for a long time into the future. The required rate of return (Rs) on the stock is 12 percent. What is the fair present value? Multiple Choice O O E $26.25 $22.50 $35.26 $50.25 Q Search $ 4 R is do F % 5 164- T 8 N 10 DII K M O O ENG D
1. Consider the following information State of Economy Probability of State of Economy Rate of Return if State Occurs Stock S Stock T Boom .20 22% 18% Normal .80 15 % 14% i) What is the expected return for stock S? For Stock T? ii) What is the standard deviation for Stock S? For stock T? iii) What is the coefficient of variation for Stock S? For stock T? iv) If you invest 40% of your money in stock S and 60% in stock T, what is the expected return of the portfolio v) Find the return of your portfolio when a) economy is booming and b) economy is normal. vi) What is the standard deviation for your portfolio?

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