Investment Selection | L04] Given that Hertz was down by 88 percent in the first half of 2020, why did some investors hold the stock? Why didn't they sell out before the price declined so sharply? Show work on excel
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- Please complete in Excel (and show work)A. If a stock costs $55 one month and drops to $45 the next month, what is the expected stock price the next month, if we assume the stock follows a random walk? B. Explain both technical and fundamental analysis and what form of the efficient market hypothesis corresponds to each.1. You have $100,000 invested in this portfolio. $55,000 is invested in IBM: Probability of State of Economy 0.15 IBM 0.05 TWTR -0.17 Recession Normal 0.65 0.08 0.12 Вoom 0.20 0.13 0.29 What is the expected return and standard deviation of each stock? What is the portfolio expected return and standard deviation? You are considering adding another stock, DNKN, with a beta of 1.3 to the portfolio. The market risk premium is 8% and the risk-free rate is 2.5%. What is the expected return of this asset? You decide to open a separate account at another brokerage firm. Your goal is to have a portfolio beta of 1.12. The portfolio consists of 20% U.S. Treasury bills, 50% stock A, and 30% stock B. Stock A has a risk- level equivalent to that of the overall market. What is the beta of stock B? Please interpret what this beta measure represents relative to the beta of the market. What is the difference between systematic and unsystematic risk? Be sure to mention which is diversifiable risk and…
- answer last 3 questionsSaved Over the last five years, the price of stock A has been changing as follows. What should be the geometric return? Hint: make sure you use the return and correct number of periods in the formula. Year Stock Price 7.47%. 8.37%. 10.00%. 6.37%. 9.04%. 11.12%. 2019 $87 2020 $90 2021 $83 2022 $100 2023 $120The following table is an analyst's best guess for the likelihood of various states of the economy next year and the corresponding return on the stock of EFG Corp. State of the Expected Return Economy Probability (%) Ideal 0.2 20.0 Good 0.4 15.0 Fair 0.3 8.0 Poor 0.1 -10.0 What is the expected percentage rate of return on EFG Corp. stock? Group of answer choices 3.4 10.4 10.8 11.4 not enough information
- 1) Can a person with rational expectations expect the price of a share of google to rise by 8% in next month? 2) what is the best financial instrument to offset market risk exposure and from market volatility? WHY?REQUIRED RATE OF RETURN Suppose rr = 9%, ry = 14%, and b, = 1.3. a. What is r, the required rate of return on Stock i? b. Now suppose that rE (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect r and r? 8-12 Now assume that rp remains at 9%, but (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect r,? C. (1) increases to 16% orYou live in a world where three future states are possible: Boom, Normal and Recession. See the probablities of these states in the attched table. Consider a stock which you expected to have the following returns in these states of the economy. State Probability Boom Normal Recession O 6.52% οιοιοι What is the standard deviation of returns on an investment in this stock? 6.37% ○ 4.62% 25% 55% 20% O 7.17% State Expected Return 0.15 0.08 -0.04
- Assume that you are using the Capital Asset Pricing Model (CAPM) to find the expected return for a share of common stock. Your research shows the following: Beta = βi = 1.54 Risk free rate = Rf = 2.5% per year Market return = E(RM) = 6.5% per year Based on this information, answer the following: A. Based on the beta, how does the stock's risk compare to the market overall? On what do you base your answer? B. Based on the beta, how would you expect the stock's returns to react to a decrease in returns in the market overall? Why? C. According to the CAPM and the information given above, what is the expected return E(Ri) for this stock? D. If the required rate of return on this stock were 7% per year, would you invest? Why or why not?If D0 = $2.25, g (which is constant) = 3.6%, and P0 = $50.00, then what is the stock's expected total return for the coming year? A 8.10% - This is incorrect B 4.83% C 4.66% - This is incorrect D 4.50% - This is incorrect E 8.26%What are the expected returns for stock A and stock B? State Probability Return on A Return on B Boom .60 0.35 0.10 Bust .40 0.05 0.25 a. 15.50%, 10.83% b. 26.00%, 14.50% c. 23.00%, 16.00% d. 21.50%, 16.75%