Problem 13-10 (Algo) Risk-averse [LO13-2] Tim Trepid is highly risk-averse while Mike Macho actually enjoys taking a risk. Returns: Expected Value $ 8,800 7,000 16,900 11,600 Investments Buy stocks Buy bonds Buy commodity futures Buy options a-1. Compute the coefficients of variation. Note: Round your answers to 3 decimal places. Buy stocks Buy bonds Buy commodity futures Buy options Coefficient of Variation Standard Deviation $ 5,600 2,060 22,100 12,400

Problem 13-10 (Algo) Risk-averse [LO13-2] Tim Trepid is highly risk-averse while Mike Macho actually enjoys taking a risk. Returns: Expected Value $ 8,800 7,000 16,900 11,600 Investments Buy stocks Buy bonds Buy commodity futures Buy options a-1. Compute the coefficients of variation. Note: Round your answers to 3 decimal places. Buy stocks Buy bonds Buy commodity futures Buy options Coefficient of Variation Standard Deviation $ 5,600 2,060 22,100 12,400

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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INV4 1-3 Options are often used in combination with stocks to reduce risk or to produce other avenues of revenue. Buying protective puts guards against downside risk while allowing for upside potential. Writing covered calls allow investors to earn premium income on a stock they expect to remain stable in price. Wang Foo Ltd. has a current stock price of $80, does not pay dividends, and has an expected standard deviation of .30. Also, the risk-free rate is 10% per year, continuously compounded. The price of a European call option contract of 100 shares is $1,726.39. The price of a European put option contract of 100 shares is $220.60. 3. What is the cost of writing a covered call?
Prudent Bank holds a stock in its portfolio which has the following discrete probability distribution of payoffs: Probability Payoff 33.0 65.5 0.5 0.013 0.987 ($ millions) Answer: 28 36 40 -300 -532 At a 99 % confidence level, what is the Expected Shortfall? (Please only provide the magnitude of Expected Shortfall, i.e. without a minus sign, and round your answer to two decimal places in terms of millions of dollars - please do not show the $ sign in the answer. e.g. if the answer is -$2.134 million, enter 2.13)
INV4 1a Options are often used in combination with stocks to reduce risk or to produce other avenues of revenue. Buying protective puts guards against downside risk while allowing for upside potential. Writing covered calls allow investors to earn premium income on a stock they expect to remain stable in price. Wang Foo Ltd. has a current stock price of $80, does not pay dividends, and has an expected standard deviation of .30. Also, the risk-free rate is 10% per year, continuously compounded. What is the European call option price and European put option price, for 100-share contracts expiring in 9 months, at a strike price of $70, according to the Black-Scholes-Merton model? Hint: Use Spreadsheet 21.1 from file Bodie_9Ce_Ch21.xlsx.
Consider the following information about Stocks I and II: State of Economy Recession Normal Irrational exuberance Probability of State of Economy .30 .50 .20 Rate of Return if State Occurs Stock I .04 16 .05 on the stock's systematic risk/beta, Stock The market risk premium is 8 percent and the risk-free rate is 5 percent. (Do not round intermediate calculations. Enter the standard deviations as a percent and round all answers to 2 decimal places, e.g., 32.16.) Stock II -.19 06 .39 The standard deviation on Stock I's expected return is Stock I beta is 0.65 22.11 percent, and the Stock II beta is Answer is complete but not entirely correct. percent, and 5.81 the The standard deviation on Stock Il's expected return is is "riskier". 0.01 Therefore, based
HELP WITH 3 PLEASE Consider a two period economy. You can buy stocks in period 0, and then sell them in period 1. You can also enter into futures contracts in period 0, which expire in period 1. Suppose a stock has a β of 0.5. The stock pays no dividends, and is trading at $100. The market has an expected return of 10%. The interest rate is 2%. Suppose the CAPM holds. What is the stock’s expected return? What is the expected price of the stock in period 1? Consider a futures contract on the stock, expiring at t = 1. What is the fair price of the futures contract, in t = 1 dollars? Suppose you take a long position in the futures contract in period 0 (so, you promise to pay money, in exchange for getting the stock in period 1). When the futures contract expires in period 1, you receive the stock and immediately sell it. What is the expected amount you will pay in money for the stock? What is the expected amount you get from selling the stock? Since buying single-stock futures appears…
品 Check my work Consider the following information: Probability of Rate of Return if State Occurs State of Economy Economy Stock A Stock B .050 130 .220 -33 .23 oped Recession .23 Normal .63 Boom .14 .46 Book Hint a. Calculate the expected return for the two stocks. (Do not round interme calculations and enter your answers as a percent rounded to 2 decimal places 32.16.) b. Calculate the standard deviation for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places 32.16.) Print a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B Graw **. **** APR 08 F3 F1 F2
Consider the following information: Probability of State of Economy .20 .60 .20 Economy Recession Normal Boom Rate of Return if State Occurs Stock A Stock B .035 .115 .290 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. a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B do do do do % % % % -.40 .30 .53
Problem 6-1 Financial Pages (LO1) Consider the table given below to answer the following question. Maturity Coupon Bid Price Asked Price Chg Asked Yield toMaturity (%) 15-02-2020 1.375 98.3281 98.3438 − 0.0078 2.228 15-02-2021 2.25 99.5781 99.5938 0.0313 2.391 15-02-2025 7.625 130.6719 130.6875 0.1094 2.770 15-02-2029 5.25 121.8516 121.9141 0.2344 2.908 15-02-2036 4.5 120.9063 120.9688 0.5313 2.986 15-02-2041 4.75 127.2422 127.3047 0.6641 3.084 15-02-2048 3 97.2656 97.2969 0.7266 3.140 a. What is the current yield of the 2.25% 2021 maturity bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Portfolio Beta Your investment club has only two stocks in its portfolio. $50,000 is invested in a stock with a beta of 0.7, and $70,000 is invested in a stock with a beta of 2.3. What is the portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.
Check My Work eBook 目 Problem Walk-Through Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 7.65% 14% 0.7 B 9.45 14 1.1 11.70 14 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 4.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) a. What is the market risk premium (rM - TRE)? Round your answer to one decimal place. 34.2 % b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. 0.54 c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. 1.62 d. What would you expect the standard deviation of Fund P to be? I. Less than 14% II. Greater than 14% III. Equal to…
8 Consider the following information on Stocks I and II: State of Economy Recession Normal Irrational exuberance a. Beta Standard deviation Probability of State of Economy .28 .63 .09 b. Beta The market risk premium is 11.3 percent, and the risk-free rate is 4.3 percent. a. Calculate the beta and standard deviation of Stock I. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. b. Calculate the beta and standard deviation of Stock II. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskier"? Rate of Return if State Occurs Stock I Stock II Standard deviation c. Most systematic risk d. Most unsystematic risk e. "Riskier" stock .035 .335 .195 % -.23 .15 .43 %
If Stock Z is correctly priced, you can infer that the expected market return is ____%. Do not round any intermediate work, but round your final answer to 2 decimal places (example: enter 12.34 for 12.34%). Do not enter the % sign. Margin of error for correct responses: +/- .05 expected return (implied by market price) Beta Stock Z 12% 1.48 T-bonds 5%

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