We know the following expected returns for stocks A and B, given the different states of the economy: State(s) Probability E(rA,s) E(rB,s) Recession 0.1-0.06 0.04 Normal 0.5 0.09 0.07 Expansion 0.4 0.17 0.11 What is the standard deviation of returns for stock B?
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- You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?Consider an event study of the following stock. Realised return Market return t = 0 (event day) 0.1 0.1 t =1 0.06 0.04 t = 2 0.03 0.02 t = 3 0.015 0.01 Suppose that the estimated market model is . What is the CAR (cumulative abnormal returns) for t = 3?We know the following expected returns for stock A and the market portfolio, given different states of the economy: State (s) Probability E(rA,s) E(rM,s) Recession 0.3 -0.05 0.02 Normal 0.5 0.1 0.05 Expansion 0.2 0.18 0.09 The risk-free rate is 0.02. Assuming the CAPM holds (expected and required returns are the same) , what is the beta for stock A?
- Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.30 0.05-0.15 Normal 0.55 0.15 0.15 Boom 0.15 0.20 0.35 Calculate the expected return for the two stocks.Consider the following information: Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .20 .010 −.35 Normal .55 .090 .25 Boom .25 .240 .48 Calculate the expected return for the two stocks. Calculate the standard deviation for the two stocks.Suppose you have predicted the following returns for stock C in three possible states of nature. What is the expected return of stock C? State Probability Return Boom 0.3 0.15 Normal 0.5 0.10 Recession 0.2 0.02
- You are comparing Stock A to Stock B. Given the following information, what is the difference in the expected returns of these two securities? State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Normal .75 .13 .16 Recession .25 −.05 −.21a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .45 correlation with the market portfolio and a standard deviation of 55 percent? c. Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market portfolio has a variance of…Plz show the formula step by step. There is the following table shows the probabilities of occurrence of 3 states and the expected rate of returns on stocks A and B State Probability Expected rate ofReturns on Stock A Expected rate ofReturns on Stock B Boom 0.5 0.25 0.20 Neutral 0.3 0.15 0.10 Recession 0.2 0.05 0.02 (A) Calculate the expected rates of returns and standard deviations of stocks A and B. The colleague has given you his forecasts of stocks C and D as follows: State Probability Expected rate ofReturns on Stock C Expected rate ofReturns on Stock D Boom 0.7 0.40 -0.10 Bust 0.3 -0.05 0.30 She would like to invest 80% of his money in stock C and 20% of her money in stock D to construct a portfolio.(B) Calculate the portfolio's expected rate of returns and its standard deviation
- Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092You have estimated the following probability distributions of expected future returns for Stocks X and Y: Stock X Stock Y Probability Return Probability Return 0.1 -12 % 0.2 4 % 0.1 11 0.2 7 0.3 14 0.3 11 0.3 30 0.2 17 0.2 40 0.1 30 What is the expected rate of return for Stock X? Stock Y? Round your answers to one decimal place.Stock X: % Stock Y: % What is the standard deviation of expected returns for Stock X? For Stock Y? Round your answers to two decimal places.Stock X: % Stock Y: % Which stock would you consider to be riskier? is riskier because it has a standard deviation of returns.a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio returm and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the Page 7 of 33 expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a 45 corelation with the market portfolio and a standard deviation of 55 percent? C. Suppose the risk-free rate is 4.2 percent and the market portfolıo has an expected return of 10.9 mercent Tibemadkat normfeliobasiabiamance…