Problem 13-9 Returns and Variances [LO1] Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Boom Bust .60 .40 Stock A .08 Stock B .16 Stock C .34 .18 .08 -.07 a. What is the expected return on an equally weighted portfolio of these three stocks? (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 18 percent each in A and B and 64 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) Answer is complete but not entirely correct. a. Expected return b. Variance 14.13% 0.005703

Problem 13-9 Returns and Variances [LO1] Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Boom Bust .60 .40 Stock A .08 Stock B .16 Stock C .34 .18 .08 -.07 a. What is the expected return on an equally weighted portfolio of these three stocks? (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 18 percent each in A and B and 64 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) Answer is complete but not entirely correct. a. Expected return b. Variance 14.13% 0.005703

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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A 133.
Question 25 (2.5 points) Listen The risk-free rate is 1.45% and the market risk premium is 5.21%. According to the Capital Asset Pricing Model (CAPM), a stock with a beta of 1.13 will have an %. expected return of 1) 7.34% 2) 15.66% 3) 5.56% 4) 9.12% 5) 13.25%
QUESTION 2 Copy of In each small interval of time the stock price is assumed to move up by a proportional amount or to move down by a proportional amount d Consider the following binomial tree Suppose So-70.70, o =40%, At =0.0833 89.07 A. 70.70 70.70 B 56.12 Find the value of B?
Consider the following information: State of Probability of Economy State of Economy 15 45 30 .10 Stock A Stock B Boom 32 42 Good 19 13 Poor -.05 -08 Bust -16 -,28 -09 Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the standard deviation of this portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Do not include a percent sign with your answer.) Numeric Response **** Rate of Return if State Occurs wwwww Stock C 33 12 -.06
A4 answer the questions below
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A4 6 b b. Suppose we observe two stocks with the following characteristics: Stock Expected return Beta M 20% 1.6 N 12% 0.9 An asset is said to be undervalued if its price is too low given its expected return and risk. The risk-free rate is currently 6%. Is one of the two stocks undervalued relative to the other? Explain your answer fully (i.e., provide reasons why you think the stock is or is not undervalued).
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
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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 %
Consider the following information: State of Probability of State of Economy .60 40 Economy Boom Bust Rate of Return If State Occurs Stock A .15 .18 Stock B .23 .08 Stock C .42 -.09 What is the expected return of a portfolio equally invested in stocks A, B, and C? Round to the nearest XX.XX%
N3

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