Suppose you have $200,000 in cash, and you decide to borrow another $24,000 at a 6% interest rate to invest in the stock market. You invest the entire $224,000 in a portfolio J with a 21% expected return and a 27% volatility. a. What is the expected return and volatility (standard deviation) of your investment? b. What is your realized return if J goes up 39% over the year? c. What return do you realize if J falls by 35% over the year? a. What is the expected return and volatility (standard deviation) of your investment? The expected return of your investment is ☐ %. (Round to two decimal places.)

Suppose you have $200,000 in cash, and you decide to borrow another $24,000 at a 6% interest rate to invest in the stock market. You invest the entire $224,000 in a portfolio J with a 21% expected return and a 27% volatility. a. What is the expected return and volatility (standard deviation) of your investment? b. What is your realized return if J goes up 39% over the year? c. What return do you realize if J falls by 35% over the year? a. What is the expected return and volatility (standard deviation) of your investment? The expected return of your investment is ☐ %. (Round 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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Please answer the question in the image below.
You want to know how your portfolio in Problem 1 would perform in one year. The following table shows the economic scenarios, their probabilities, and the returns of the stocks under each scenario. Economic Scenario Growth Recession Probability .60 .40 Stock A 20% -10% Return (%) Stock B 0% 5% a. Calculate the expected return of the portfolio under the growth scenario. b. Calculate the expected return of the portfolio under the recession scenario.
Suppose that you are working as a financial analyst in an investment bank. Your client is seeking your advice to invest in either Stock A or Stock B given the market conditions in the coming year. Stock A is expected to yield a return of 35% if the market experiences a boom and a return of 5% if the market experiences a bust. Stock B is expected to yield a return of 65% if the market experiences a boom and a return of 15% if the market experiences a bust. According to your estimates, there is a 60% probability that the market will experience a boom and a 40% probability that the market will experience a bust. Calculate the expected return for each stock. Which stock would you advise your client to invest in if her/her objective is to maximize returns regardless of the level of risk?
You have been managing a $5 million portfolio that has a beta of 1.15 and a required rate of return of 9.025%. The current risk-free rate is 5%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.95, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places. ___%
Stock A has expected return of 10 percent per year and stock B has expected return of 20 percent. If 40 percent of a portfolio funds are invested in stock A and the rest in stock B. What is the expected return on the portfolio of stock A and Stock B? (please state the formula and show your workings)
You have been managing a $5 million portfolio that has a beta of 1.05 and a required rate of return of 6.675%. The current risk-free rate is 3%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 1.25, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places.
2. Answer both questions: a. You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end. What is the rate of return on your investment if the year-end stock prices turn out to be $38, $40, and $42? What is your real (inflation-adjusted) rate of return in each case, assuming an inflation rate of 3%? b. Consider the following information on the returns on stock and bond investment. Scenario Profitability Stocks Bonds Recession .2 -5% +14% Normal Economy .6 +15% +8% Boom .2 +25% +4% i) Calculate the expected rate of return and standard deviation in each investment. ii) Do your results support or contradict the historical record on the relationship between risk and return in the financial market in both Canada and the United States? iii) Which investment would you prefer? Explain your answer.
You are analyzing a stock that has a beta of 1.19. The risk-free rate is 4.4% and you estimate the market risk premium to be 6.6%. If you expect the stock to have a return of 9.8% over the next year, should you buy it? Why or why not? The expected return according to the CAPM is%. (Round to two decimal places.) Should you buy the stock? (Select the best choice below.) O A. Yes, because the expected return based on the beta is equal to or less than the return on the stock. O B. No, because the expected return based on the beta is greater than the return on the stock.
. Suppose your expectations regarding the stock price are as follows: Selling price = 100 T-bills = 6% dividend = 10 per 100 value State of market Probability Ending price Вoom 0.3 140 Normal growth 0.4 110 Recession 80 0.3 Calculate the HPR for each scenario, the expected rate of return, and the risk premium on your investment, and standard deviation of excess return.
You observe a stock price of $18.75. You expect a dividend growth rate of 5%, and the most recent dividend was $1.50. What is the required return? Solve using Excel
Assume the risk-free rate is 2.5% and the market risk premium is 8.0%. The beta of GE is 1.10. The dividend forecast for the next four years is as follows: 2017: $1.04 2018: $1.22 2019: $1.41 2020: $1.60 Using the dividend payout ratio (53%) and Return on Equity (19.5%), what is closest to the intrinsic value of GE stock using the dividend discount model? Question 9 options: a) $53.40 b) $140.00 c) $97.98 d) $75.83
a) Assume that you bought 200 stock B in your portfolio for total investment of $1200, now the market price of the stock is $75, the dividend paid for this stock is $2 each year. How much is the capital gain of this stock? b) Assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A accounts for 45% and stock B accounts for 55% of your portfolio? A B Expected return 12.50% 18.50% Standard Deviation of return 15% 20% Correlation of coefficient (p) 0.4

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