Return on a 10-Year Zero Probability of Scenario Scenario Worst Case 0.10 Coupon Treasury Bond During the Next Year -14% Poor Case 0.20 -4% Most Likely 0.40 6% Good Case 0.20 16% Best Case 0.10 26% 1.00 You have also gathered historical returns for the past 10 years for Blandy and Gour- mange Corporation (a producer of gourmet specialty foods), and the stock market. Historical Stock Returns Year Market Blandy Gourmange 1 30% 26% 47% 2 7 15 -54 3 18 -14 15 4 -22 -15 7 5 -14 2 -28 6 10 -18 40 7 26 42 17 8 -10 30 -23 9 -3 -32 -4 10 38. 28 75 Standard deviation: Average return: Correlation with the market: The risk-free rate is 4%, and the market risk premium is 5%. 8.0% ? 9.2% 20.1% ? 38.6% 1.00 ? 0.678 Beta: 1.00 ? 1.30
Return on a 10-Year Zero Probability of Scenario Scenario Worst Case 0.10 Coupon Treasury Bond During the Next Year -14% Poor Case 0.20 -4% Most Likely 0.40 6% Good Case 0.20 16% Best Case 0.10 26% 1.00 You have also gathered historical returns for the past 10 years for Blandy and Gour- mange Corporation (a producer of gourmet specialty foods), and the stock market. Historical Stock Returns Year Market Blandy Gourmange 1 30% 26% 47% 2 7 15 -54 3 18 -14 15 4 -22 -15 7 5 -14 2 -28 6 10 -18 40 7 26 42 17 8 -10 30 -23 9 -3 -32 -4 10 38. 28 75 Standard deviation: Average return: Correlation with the market: The risk-free rate is 4%, and the market risk premium is 5%. 8.0% ? 9.2% 20.1% ? 38.6% 1.00 ? 0.678 Beta: 1.00 ? 1.30
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
Related questions
Question
None
Transcribed Image Text:Return on a 10-Year Zero
Probability of
Scenario
Scenario
Worst Case
0.10
Coupon Treasury Bond
During the Next Year
-14%
Poor Case
0.20
-4%
Most Likely
0.40
6%
Good Case
0.20
16%
Best Case
0.10
26%
1.00
You have also gathered historical returns for the past 10 years for Blandy and Gour-
mange Corporation (a producer of gourmet specialty foods), and the stock market.
Historical Stock Returns
Year
Market
Blandy
Gourmange
1
30%
26%
47%
2
7
15
-54
3
18
-14
15
4
-22
-15
7
5
-14
2
-28
6
10
-18
40
7
26
42
17
8
-10
30
-23
9
-3
-32
-4
10
38.
28
75
Standard deviation:
Average return:
Correlation with the market:
The risk-free rate is 4%, and the market risk premium is 5%.
8.0%
?
9.2%
20.1%
?
38.6%
1.00
?
0.678
Beta:
1.00
?
1.30
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education