Stocks A and B have the following probability distributions ofexpected future returns:Probability0.10.10.50.20.1AB(15%)(27%)50152220303644a. Calculate the expected rate of return, TB, for Stock B (A =14.10%.) Do not round intermediate calculations. Round youranswer to two decimal places.%b. Calculate the standard deviation of expected returns, OA, forStock A (OB 18.41%.) Do not round intermediatecalculations. Round your answer to two decimal places.=%Now calculate the coefficient of variation for Stock B. Do notround intermediate calculations. Round your answer to twodecimal places.

Standard Deviation mesaure the risk which is involved in earning the return from the stock. lower…

Stocks A and B have the following probability distributions of expected future returns: Probability 0.1 0.1 0.5 0.2 0.1 B (27%) 0 15 22 20 30 36 44 a. Calculate the expected rate of return, B, for Stock B (A: = 14.10%.) Do not round intermediate calculations. Round your answer to two decimal places. % A (15%) 5 b. Calculate the standard deviation of expected returns, OA, for Stock A (OB 18.41%.) Do not round intermediate calculations. Round your answer to two decimal places. = % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places

Stocks A and B have the following probability distributions of expected future returns: Probability 0.1 0.1 0.5 0.2 0.1 B (27%) 0 15 22 20 30 36 44 a. Calculate the expected rate of return, B, for Stock B (A: = 14.10%.) Do not round intermediate calculations. Round your answer to two decimal places. % A (15%) 5 b. Calculate the standard deviation of expected returns, OA, for Stock A (OB 18.41%.) Do not round intermediate calculations. Round your answer to two decimal places. = % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places

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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Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (10 %) (34 %) 0.2 4 0 0.4 14 23 0.2 18 28 0.1 30 39 Calculate the expected rate of return, , for Stock B ( = 12.00%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 20.05%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Assume the risk-free rate is 3.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places. Stock A: Stock B:
Stock X has a 10.0% expected return, a beta coefficient of 0.9, and a 30% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 25% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. a. Calculate each stock's coefficient of variation. Do not round intermediate calculations. Round your answers to two decimal places. CVx= CVy= 2
K (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Common Stock B Return 13% 17% 18% Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a spreadsheet.) Return -7% 5% 16% 21% www a. Given the information in the table, the expected rate of return for stock A is 16.40 %. (Round to two decimal places.) The standard deviation of stock A is 1.74 %. (Round to two decimal places.) b. The expected rate of return for stock B is 9.8 %. (Round to two decimal places.) The standard deviation for stock B is 6.12 %. (Round to two decimal places.)
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Required Rate of Return Stock R has a beta of 1.8, Stock S has a beta of 0.35, the expected rate of return on an average stock is 12%, and the risk-free rate is 7%. By how much does the required return on the riskier stock exceed that on the less risky stock? Do not round intermediate calculations. Round your answer to two decimal places.
A stock has a required return of 16%, the risk-free rate is 5.5%, and the market risk premium is 4%. a) What is the stock's beta? b) If the market risk premium increased to 8%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.6% + 1.2RM + eA RB = -1.6% + 1.5RM + eB OM = 16%; R-squarea = 0.25; R-square; = 0.15 What is the covariance between each stock and the market index? (Calculate using numbers in decimal form, not percentages. Do not round your intermediate calculations. Round your answers to 3 decimal places.) Covariance Stock A Stock B
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (7 %) (26 %) 0.1 3 0 0.5 14 22 0.2 20 26 0.1 36 50 Calculate the expected rate of return, , for Stock B ( = 14.20%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.68%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. If Stock B is more highly correlated with the market than A, then it might have a higher…
Stock Y has a beta of 0.9 and an expected return of 9.46 percent. Stock Z has a beta of 2.1 and an expected return of 15.59 percent. What would the risk-free rate (in percent) have to be for the two stocks to be correctly priced relative to each other? Answer to two decimals.
Consider the following information on Stocks I and II: The market risk premium is 8 percent and the risk-free rate is 40.5 percent. a-1. What is the beta of each stock? Note: Do not round Intermedlate calculations. Round your answers to 2 decimal places. a-2. Which stock has the most systematic risk? Stock I Stock II b-1. What is the standard deviation of each stock? Note: Do not round Intermedlate calculations. Enter your answers as a percent rounded to 2 decimal places. b.2. Which one has the most unsystemstic risk? Stock I Stock II c. Which stock is "riskier"? Stock I Stock II
1. If a stock has a(Alpha)=0.002, b(Beta)=1.4, Using the market model (eq. 7.4), find the expected percent return for the above stock if the market return is expected to be 2% and the risk free rate is 1%. 2. Assume stock prices follow a random walk and a particular stock has had the following recent stock prices: Day 1: 129.5 Day 2: 126.9 Day 3: 127.1 what is the best estimate of day 4 prices?

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