Answered: State of Economy Recession Normal Boom…

State of Economy Recession Normal Boom O O Multiple Choice O 07678 01518 02277 12320 03036 Probability of State of Rate of Return. if State Occurs Economy .28 .41 .31 -9.60% 11.10 % 22.10%

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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Question

State of Economy
Recession
Normal
Boom
Multiple Choice
O
O
07678
01518
02277
12320
03036
Probability
of State of
Economy
.28
.41
31
Rate of Return
if State Occurs
-9.60%
11.10%
22.10%

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Use the following information to calculate your company's expected return. State Probability Return Boom 20% 0.42 Normal 60% 0.13 Recession 20% -0.19 Round to two decimal places.
Probability State of of State of Economy Economy 0.40 0.60 Bust Boom State of Economy Bust Boom Calculate the expected return on a portfolio of 55 percent Roll and 45 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Security Returns if State Occurs Probability of State of Economy Roll -17% 28% 0.40 0.60 Ross 18% 7% Answer is complete but not entirely correct. Portfolio Return if State Occurs 0.04 % 11.40 % E(Rp)= Product 5.50 X % 5.13 % 10.63 %
State of the Economy Recession Average Boom Probability of Occurrence O 0.26 0.51 -0.26 0.96 35% 45% 20% What is the correlation between stocks X and Z? Stock X Expected Return 25% 14% 4% Stock Y Expected Return -10% 8% 14% Stock Z Expected Return 15% 25% -10%
State of Economy Recession Normal Boom Probability of State of Economy 0.10 0.70 0.20 COPY Rate of Return if State Occurs UNGHAY Stock A 0.06 0.08 0.15 Required: Given that the expected return for Stock A is 9.200%, calculate the standard deviation for Stock A. (Do not round your intermediate calculations.) (Click to select) Stock B -0.17 0.13 0.34 CONTAINE
(Related to Checkpoint 8.1) (Expected rate of return) James Fromholtz is considering whether to invest in a newly formed investment fund. The fund's investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the fund's performance will hinge on how the national economy performs in the coming year. Specifically, he suggested the following possible outcomes: a. Based on these potential outcomes, what is your estimate of the expected rate of return from this investment opportunity? ► b. Would you be interested in making such an investment? Note that you lose all your money in one year if the economy collapses into the worst state or you double your money if the economy enters into a rapid expansion. a. The expected rate of return from this investment opportunity is%. (Round to two decimal places)
Q25 Following are three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast growth 0.3 40 % Slow growth 0.4 10 Recession 0.3 –25 Determine the standard deviation of the expected return. (Do not round intermediate calculations and round your answer to 2 decimal places.) STANDARD DEVIATION. %
470 - 34 you have concluded that the following relationships are possible next year: economic status probability rate of return weak economy .15 -5% static economy .6 5% strong economy .25 15% What is your expected rate of return (E(RI)) for next year? a. 4.25% b 6% c. 6.25% d. 7.75% e. 8%
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Vijay
% Return on T-Bills, Stocks and Market Index State of the economy Probability T-Bills Phillips Pay -up Rubber-made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean 7 16.9 2.07 19.60 15 Standard Deviation 0 23.4 15.62 18.92 17.71 Coefficient of Variation 0 1.39 7.55 0.97 1.18 Covariance with MP 0 0.04 -0.3 0.02 0.03 Correlation with Market Index 0 1 -1.0 0.69 1 Beta 0 1.32 -0.88 0.74 1 CAPM Req. Return 7 17.54 -0.02 12.89 15.0 Valuation (Overvalued/Undervalued/Fairly valued) Fairly valued Overvalued Undervalued Undervalued Fairly valued Nature of stock Defensive Aggressive Defensive Defensive Defensive Using the data generated plot the…
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Compute the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.2 23% Slow Growth 0.6 14% Recession 0.2 −30% Multiple Choice 12.5 percent 7.5 percent 3.5 percent 7.0 percent

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