The probabilities of different states of economy occurring and the holding period retum (HPR) of the Stock A and Bond B at different states of economy are shown below. State of Economy Boom Normal Recession Probability of the State of Economy 35% 45% 20% HPR of Stock A HPR of Bond B 20% -5% 12% 3% -15% 10% Other information: Standard deviation of the market portfolio is 10% 1. Calculate the standard deviation of Stock A. 2. Calculate the standard deviation of Bond B. 3. Calculate the correlation coefficient of Stock A and Bond B. 4. Suppose an investor invests $1.2 million in Stock A and $800,000 in Bond B. Calculate the standard deviation of the portfolio. 5. Out of the total variance of Stock A, 49% is systematic variance (explained variance) and 51% is non-systematic variance (unexplained variance). Calculate the beta of Stock A.

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
icon
Related questions
Question
The probabilities of different states of economy occurring and the holding period retum
(HPR) of the Stock A and Bond B at different states of economy are shown below.
State of
Economy
Boom
Normal
Recession
Probability of the
State of Economy
35%
45%
20%
HPR of Stock A
20%
12%
-15%
Other information:
Standard deviation of the market portfolio is 10%
HPR of Bond B
-5%
3%
10%
1. Calculate the standard deviation of Stock A.
2. Calculate the standard deviation of Bond B.
3. Calculate the correlation coefficient of Stock A and Bond B.
4.
Suppose an investor invests $1.2 million in Stock A and $800,000 in Bond B.
Calculate the standard deviation of the portfolio.
5. Out of the total variance of Stock A, 49% is systematic variance (explained
variance) and 51% is non-systematic variance (unexplained variance). Calculate
the beta of Stock A.
Transcribed Image Text:The probabilities of different states of economy occurring and the holding period retum (HPR) of the Stock A and Bond B at different states of economy are shown below. State of Economy Boom Normal Recession Probability of the State of Economy 35% 45% 20% HPR of Stock A 20% 12% -15% Other information: Standard deviation of the market portfolio is 10% HPR of Bond B -5% 3% 10% 1. Calculate the standard deviation of Stock A. 2. Calculate the standard deviation of Bond B. 3. Calculate the correlation coefficient of Stock A and Bond B. 4. Suppose an investor invests $1.2 million in Stock A and $800,000 in Bond B. Calculate the standard deviation of the portfolio. 5. Out of the total variance of Stock A, 49% is systematic variance (explained variance) and 51% is non-systematic variance (unexplained variance). Calculate the beta of Stock A.
Expert Solution
steps

Step by step

Solved in 5 steps

Blurred answer
Knowledge Booster
Risk and Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education