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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- 5. Risk Premium (S7.1) Suppose that in year 2030, investors become much more willing than before to bear risk. As a result, they require a return of 8% to invest in common stocks rather than the 10% that they had required in the past. This shift in risk aversion causes a 15% change in the value of the market portfolio. a. Do stock prices rise by 15% or fall? b. If you now use past returns to estimate the expected risk premium, will the inclusion of data for 2030 cause you to underestimate or overestimate the return that investors required in the past? c. Will the inclusion of data for 2030 cause you to underestimate or overestimate the return that investors require in the future?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…You are analyzing a stock that has the following returns given the various states of economy. State of Economy Probability Return Recession 0.12 -7.20 Normal 0.68 6.80 Boom 0.2 15.40 What is the expected return on this stock?
- A Moving to another question will save this response. Quèstion 12 What is the covariance of returns between stocks A and B? Expected returm of A is 30% and B's expected retum = 23.333333% Year Retum A Return B 2017 40% 55% 2016 30% 35% 2015 20% 20% O 0.025 O 0.07 O None of the listed items is correct O 0.095 A Moving to another question will save this response. MacBook Air esc F2 F3 FS F6 F7 %23 $ & * 2 3 8 Q W E T Y A S D G Z C V alt ption command * 00 つsuppose your expectations regarding the stock market are as follows: State of the Economy Probability HPR Boom 0.2 42% Normal growth 0.6 23 Recession 0.2-17 E(r) = Σss = 1p(s)r( s) Var(r)=\sigma 2 = Σss = 1p(s)[r(s)-E(r)]2 SD (r)=\sigma = Var(r) ✓ Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)The 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
- Excel Online Structured Activity: Historical Return: Expected and Required Rates of Return You have observed the following returns over time: Year Stock X Stock Y Market 2011 14 % 12 % 10 % 2012 20 7 9 2013 -13 -2 -13 2014 3 1 2 2015 19 9 12 Assume that the risk-free rate is 4% and the market risk premium is 6%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet What is the beta of Stock X? Do not round intermediate calculations. Round your answer to two decimal places. fill in the blank 2 What is the beta of Stock Y? Do not round intermediate calculations. Round your answer to two decimal places. fill in the blank 3 What is the required rate of return on Stock X? Do not round intermediate calculations. Round your answer to one decimal place. fill in the blank 4 % What is the required rate of return on Stock…REQUIRED RATE OF RETURN (Percent) Tool tip: Mouse over the points on the graph to see their coordinates. 16 20 12 Slope: 6 Y-Intercept: 2 0.4 0.8 1.2 1.6 2.0 RISK (Beta) New SML (?) The SML helps determine the level of risk aversion among Investors. The higher the level of risk aversion, the the slope of the SML. Which kind of stock is most affected by changes in risk aversion? (In other words, which stocks see the biggest change in their required returns?) Medium-beta stocks High-beta stocks Low-beta stocks All stocks affected the same, regardless of betaYou 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 9.05% O 7.35% What is the expected return on an investment in this stock? 6.00% 25% 55% 20% O 3.75% State Expected Return 0.15 0.08 -0.04