Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5% and IR 5%. A stock with a beta of 1 on IP and 0.7 on IR currently is expected to provide a rate of return of 10%. If industrial production actually grows by 6%, while the inflation rate turns out to be 6%, what will be your expected rate of return on the stock, given the new information about the industrial production rate and the inflation rate? (Enter your answer as a percentage rounded to 1 decimal places.) Expected rate of return %

Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5% and IR 5%. A stock with a beta of 1 on IP and 0.7 on IR currently is expected to provide a rate of return of 10%. If industrial production actually grows by 6%, while the inflation rate turns out to be 6%, what will be your expected rate of return on the stock, given the new information about the industrial production rate and the inflation rate? (Enter your answer as a percentage rounded to 1 decimal places.) Expected rate of return %

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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According to the quantity theory of money, if the longminusrun economic growth rate is 3.6%, by how much should the Fed increase the money supply if it wants inflation to be 3%?
Most economies have a goal of maximizing the average consumption per period. Assume that during each year, an economy saves the same (to be determined) percentage S of its production. During a year in which the beginning capital level is K, a quantity K1y2 of capital is produced. If the economy saves a percentage S of its capital, then during the current year it consumes (1 2 S)K units of capital and, through savings, adds (SK) 1y2 units of capital. Also, during any year, 10% of all capital present at the beginning of the year depreciates or wears out. a. What annual savings percentage S maximizes the long-run average consumption level? Assume that year 50 represents the long run, so that the objective is the consumption level in year 50. You can assume the initial capital is 1 (for some appropriate measurement unit). b. Use SolverTable to see how the optimal value of S depends on the annual depreciation rate.
Mansukh
Nikul
Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 0.173687 ETFCDA : E(r)= 0.073763 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 Answer the following questions using Excel: What is the optimal portfolio of ETFUS and ETFCDA? Also submit an Excel file to show your work.
Suppose that two factors have been identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5%, and IR 4.0%. A stock with a beta of 2.1 on IP and 1.4 on IR currently is expected to provide a rate of return of 18% . If industrial production actually grows by 6%, while the inflation rate turns out to be 5.8%, what is your revised estimate of the expected rate of return on the stock? Note: Do not round intermediate calculations. Round your answer to 1 decimal place.
Pandemic has caused higher unemployment rate and lower growth in GDP. Federal Reserve wants to buy more 1-year and 10-year Treasury securities and sell 5-year Treasury securities to stimulate the economy. What would be shape of Treasury yield curve as a result of this move by Fed? Explain this yield curve using appropriate theory of term structure.
There are two states of the world tomorrow. With probability 1/6, the economy will be good. With probability 5/6, the economy will be bad. IBM stock return will be 15% if the economy is good, 1% if the economy is bad. Dell stock return will be 25% if the economy is good, −10% if the economy is bad. You own $1,000 of IBM and $3,000 of Dell. What is the expected return of your portfolio? What are the covariance and correlation of IBM and Dell stock returns? What is the variance of your portfolio? Please answer fast i give you upvote.
Given the following: the Prime is 8.1 %, the FED funds rate is 6.9%, 90 day T-Bills are yielding 5.2%, the average return on all stocks traded on the NYSE is 11.7%, what would be the nominal rate of return?
Calculate the required rate of return for Best Inc., assuming that (1) investors expect a 1.5% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 3.0%, (4) the firm has a beta of 1.2, and (5) its realized rate of return has averaged 10.0% over the last 5 years.
Suppose that the nominal rate of interest is 5% and the expectedrate of inflation is 2%. Whats is the expected real rate ofinterest according to Fisher? Calculate the after-tax expected realrate of assuming a 30% marginal tax rate. If inflation expectationsincrease by 2%, what will be the new nominal rate according tofisher? According to darby/feldstein? What should happen to bondprices and stock prices if the expected rate of inflationincrease
The total in rate sensitive assets for a financial institution is $120 million and the total in rate sensitive liabilities is $95 million. What is the cumulative pricing gap (CGAP) and what is the interest rate sensitivity gap ratio if total assets equals $195 million? What would the projected change to net income be if interest rates rose by 2% on both assets and liabilities? What would the projected change to net income be if interest rates declined by 2% on both assets and liabilities? What would the projected change to net income be if interest rates rose by 1.8% on assets and 1.5% on liabilities? What would the projected change to net income be if interest rates declined by 1.8% on assets and 1.5% on liabilities?

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