State of the EconomyProbability30HPR18°%BoomNormal growthRecession5012%20- 5°.What is the expected standard deviation for KMP stock?Multiple Choice6.91%8.13%779%7.25%8.85%

Standard deviation helps to determine the risk associated with the investment. It tells the…

Answered: State of the Economy Probability HPR…

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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Problem 11-6 Risk Premiums (LO1) Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (8) T-Bill Return (%) 2016 13.0 0.2 2017 21.0 0.8 2018 -6.2 1.8 2019 29.8 2.1 2020 20.6 0.4 Check my work Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) Complete this question by entering your answers in the tabs below. Required A Required B Required C What was the risk premium on common stock in each year? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Negative values should be entered with a negative sign. Year Risk Premium 2016 % 2017 % 2018 % 2019 % 2020 %
Stock Expected Return Dollar Invested Microsoft 12.00% 25000 IBM 11.50% 25000 GE 10.00% 25000 Exxon 9.50% 25000 10.75% 100000 What is the portfolio's return?
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You own the portfolio below, what is your expected return? % of Portfolio Expected Return 50% 15% 35% Stock PCBM NAV MB O 10.8% O 13.5% O 2.6% O 8.3% 19% -10% 8%
% Return on T-Bills, Stocks And Market Index State of 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 Standard Deviation Coefficient of Variation Covariance with MP Correlation with Market Index Beta CAPM Req. Return Valuation (Overvalued/Undervalued/Fairly Valued) Nature of Stock (Aggressive/Defensive) Fill the parts in the above table that are shaded in yellow and show workings other than spread sheet analysis. Using the data generated in the previous…
Return rate
Consider the three factor APT model Factor Risk Premium Change in GNP 5% Change in energy prices -1 Change in long-term interest rates +2 Calculate the expected rate of return on the following stocks. The risk free interest rate is 7%. a. A stock whose return is uncorrelated with all three factors b. A stock with average exposure to each factor (i.e., with b = 1 for each) c. A pure play energy stock with high exposure to the energy factor (b=2) but zero exposure to the other two factors
E. 12.11% 2. North Around, Inc. stock is expected to return 22 percent in a boom, 13 percent in a normal economy, and -15 percent in a recession. The probabilities of a boom, normal economy, and recession are 6 percent, 92 percent, and 2 percent, respectively. What is the standard deviation on the returns of this stock? A. 011387 B. 000169 C.001506 D. 045318 E. 011561
You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $1.50 a share at the end of the year (D₁ = $1.50) and has a beta of 0.9. The risk-free rate is 2.7%, and the market risk premium is 5.5%. Justus currently sells for $35.00 a share, and its dividend is expected to grow at some constant rate, g. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is P3?) Round your answer to two decimal places. Do not round your intermediate calculations. 25 X $
vv.2
Table A State of the Economy Probability 20% Steady Recession 35% Retum in state 7% -3% 15% Table A shows the states of the economy, the probability of being in that state and the return on a particular stock during that state of the economy. What is the expected return of the stock, given the intamallion in the tow 4.10% 6.33% 8.33% None of the answers isted here.
Stock A has the following returns for various states of the economy: State of the Economy Probability Stock A's Return Recession 10% -.30 Below Average 20% -.02 Average 40% .10 Above Average 20% .18 Boom 10% .40 Stock A's expected return is A. 7.2% B. 9.6% C. 5.4% D. 8.2%

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State of the Economy Probability HPR 18% 12% - 5°. Boom 30 50 Normal growth Recession 20 What is the expected standard deviation for KMP stock? Multiple Choice 6.91% 8.13% 779% 7.25% 8.85%