State of Economy Probability of State of EconomyStock I Recession Normal Irrational exuberance.10 .35 .55 Rate of Return if State Occurs Stock II -.16 .14 .21 d. Which stock has the most unsystematic risk? e. Which stock is "riskier"? .05 .11 .15 The market risk premium is 10 percent and the risk-free rate is 5 percent. a. What is the beta for each stock? b. Which stock has the most systematic risk? C. What is the standard deviation for each stock?

State of Economy Probability of State of EconomyStock I Recession Normal Irrational exuberance.10 .35 .55 Rate of Return if State Occurs Stock II -.16 .14 .21 d. Which stock has the most unsystematic risk? e. Which stock is "riskier"? .05 .11 .15 The market risk premium is 10 percent and the risk-free rate is 5 percent. a. What is the beta for each stock? b. Which stock has the most systematic risk? C. What is the standard deviation for each stock?

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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economic state stock A stock B depression -0.20 0.05 recession 0.10 0.20 normal 0.30 -0.12 boom 0.50 0.09 a) what is the correlation in the stocks´return? b) find the weights that make up the global minimum variance portfolio (GMVP) and calculate the portfolio´s expected return and risk
What is the beta of a firm whose equity has an expected return of 21.3 percent when the risk-free rate of return is 7.0 percent and the expected return on the market is 18.0 percent? Select one: O a. None of these O b. 0.79 С. 1.30 O d. 1.57
Chapter 6, Problem 14: Assume the data for two stocks, X and Y, are given below. Could the equilibrium risk free rate of return be greater than 10%? Why or why not? Assume the returns on investments in the two stocks are perfectly negatively correlated. Stock A B Expected Return 8% 13% Standard Deviation 40% 60%
Problem 1 You are given the following information about stock X and the market portfolio, M: Riskless Asset (f) Stock X Market Portfolio (M) E(r) 0.04 (4%) ? 0.10 σ 0.00 0.30 0.20 You are not given the expected return of stock X. The correlation of the returns on the stock X and the market portfolio is equal to 0.4. a) What is the beta (6) of stock X? b) Assuming the CAPM holds, what is the expected return on stock X? c) You have $1,000 to invest in some combination of the risk-free asset, stock X, and the market portfolio. You are thinking of investing $300 in the risk free asset, $400 in stock X, and $300 in the market portfolio. What is the overall expected return, standard deviation and beta of this portfolio?
Consider the following scenario analysis: Scenario Recession Normal economy Boom Probability Stocks Rate of Return Bonds 0.3 -5% 12% 0.6 13 9 0.1 24 3 Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a. What is the rate of return on the portfolio in each scenario? b. What are the expected rate of return and standard deviation of the portfolio? es Complete this question by entering your answers in the tabs below. Required A Required B What is the rate of return on the portfolio in each scenario? Note: Enter your answer as a percent rounded to 1 decimal place. Recession Normal economy Boom Rate of Return % % %
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Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession 21 .06 21 Normal 58 109 08 Boom 21 14 25 a. Calculate the expected return for Stocks A and B. (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 Stocks A and B. (Do not round Intermedlate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Stock A expected return a. Stock B expected return b. Stock A standard deviation b. Stock B standard deviation 196 96 96 %
Consider the following information: Probability of State of Economy .22 .57 .21 Economy Recession Normal Boom Rate of Return if State Occurs. Stock A Stock B a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B .020 .100 160 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. % % -.27 .17 .40 % %
Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of return Strong 0.25 21 Normal 0.55 8 Weak 0.20 -5 What is the stock's expected return? Do not round intermediate calculations. Round your answer to two decimal places. ____% What is the stock's standard deviation? Do not round intermediate calculations. Round your answer to two decimal places. ____% What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations. ____
4
Consider the following information: State of Probability of Economy State of Economy Boom Bust .58 .42 Rate of Return if State Occurs Variance Stock A .07 .16 Stock B 15 .06 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.) Expected return 12.87% % Stock C 33 -.06 b. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., 32.161616.) 1.29% *

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