Risk and return( The stock of Hawkeye Corporation (HC) currently trades for $100. One year from now the stock price is either $75 with a 35% chance, $100 with a 10% chance, or $120 with a 55% chance. Determine the three possible end-of-year returns and then find expected return, variance and volatility of HC stock. Prob. Value 35% $75 10% $100 55% $120 Return pot I
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- Crisp Cookware’s common stock is expected to pay a dividend of $3 a share at the end of this year (D1 = $3.00); its beta is 0.8. The risk-free rate is 5.2%, and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $40 a share. Assuming the market is in equilibrium, what does the market believe will be the stock’s price at the end of 3 years (i.e., what is )?A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years and then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?If risk free rate is 7% and the market return is 15%. Compute the expected and required return on each stock, determine the appropriate trading strategy Stock Price today Price in 1 year Dividends in 1 year Beta A $25 $27 $1 1 B $40 $45 $2 0.8 C $15 $17 $0.50 1.2
- 1. A share of stock of company is now selling for 23.5 lei. A financial analyst summarizes the uncertainty about the rate of return on the stock by specifying three possible scenarios: Scenario Probability 0.35 End-of-year price 35 27 Annual dividend 4.4 II 0.3 4 15 Compute the expected return and risk on this security. III 0.35 4Problem: 1. Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence. Stock A Stock B 20X1 10 20 20X2 -15 -20 20X3 20 -10 20X4 25 30 20X5 -30 -20 20X6 20 60 a. Which of the two stocks is riskier? Why? b. Which of the stocks is expected to yield a higher return? Why? c. Where will you invest? Problem Solving: 1. Suppose you want to buy 10,000 shares of MegaWorld Corporation at a price of 4.00. You put up P10,000 and borrow the rest. What does your account balance sheet would look like? What is your margin? 2. Supposed that in the previous problem you shorted 10,000 shares instead of buying. The initial margin is 60 percent. What does the account balance sheet look like? 3. You deposited P100,000 cash in brokerage account and short sell P200,000 of stocks on margin.…1. A stock price is currently $50 and it follows geometric Brownian motion with an expected return of 10% and volatility of 25% per year. The probability that the stock price at the end of 9 months will be greater than or equal to $60 is closest to: a. 0.6037 b. 0.2245 c. 0.2730 d. 0.7755
- PLEASE SOLVE THIS QUESTION, ASAP: Q: Suppose a company estimates following one year returns from investing in the common stock of Leopard Corporation: Possibility of Occurrence .1 .25 .1 .15 .1 .2 .1 Possible returns 15% 30% 15% -10% -5% 20% 10% Required: Calculate Expected return & Risk {Standard Deviation)Historical Returns: Expected and Required Rates of Return You have observed the following returns over time: Assume that the risk-free rate is 5% and the market risk premium is 4%. a. What are the betas of Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. % Year 2017 2018 2019 2020 2021 % Stock X 12% 17 -13 2 22 % Stock Y 15% 7 -4 3 12 Stock X: Stock Y: b. What are the required rates of return on Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. Stock X: Stock Y: c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Do not round intermediate calculations. Round your answer to two decimal places. Market 13% 12 -10 2 15(a) Stocks A and market have the following estimated retuns: RA RM year 2018 -18% -24% 2019 44% 24% 2020 -22% -4% 2021 22% 8% 2022 34% 56% Required to (1)Calculate the expected rate of return for stock A and Market during the 5-year period. (ii) Now calculate the total risk of stock A and Market
- 2. Distribution of Stock Prices Consider a stock whose current stock price is $250 and its volatility is 20%. The risk-free interest rate is 3% per annum. The future stock price is log-normally distributed. Risk-averse investors require the stock return to be 10% per annum. (a) What is the risk-neutral probability that stock price in year 2 is higher than $300? (b) What is the real probability that stock price in year 2 is higher than $300?a) Consider these three stock returns with the following annualised characteristics: Stock A Stock B Stock C Expected Return 16% 10% 3% Stock A Stock B Stock C Standard deviation 26% 22% 11% Stock A 1 0.4 0.2 According to the Capital Asset Pricing Model (CAPM), which stock is a better buy, when the market's expected return is 8%, and risk-free rate is 4%? What is the alpha of each stock? Plot the Security Market Line (SML) and each stock's risk-return point on one graph. b) Now suppose that the same stock returns have the following correlation matrix: Beta Stock B 1.5 1.1 0.3 1 0.3 Stock C 1 Weights 55% 35% 10% If we form a three-stock portfolio by investing 55%, 35% and 10% in Stock A, B and C, respectively, what is the expected return and variance of this portfolio?