You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in eachstock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (c) below. Probability0.10.20.40.3a. Compute the expected return for stock X and for stock Y.The expected return for stock X is(Type an integer or a decimal. Do not round.)Economic ConditionRecessionSlow growthModerate growthFast growthReturnsStock X Stock Y- 403080150- 11040140210

The expected rate of return is the average amount of interest that investing in stock provides while…

You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (c) below. Probability 0.1 a. Compute the expected return for stock X and for stock Y. The expected return for stock X is. (Type an integer or a decimal. Do not round.) *** 0.2 0.4 0.3 Returns Economic Condition Stock X Stock Y Recession Slow growth Moderate growth Fast growth -40 30 80 150 - 110 40 140 210

You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (c) below. Probability 0.1 a. Compute the expected return for stock X and for stock Y. The expected return for stock X is. (Type an integer or a decimal. Do not round.) *** 0.2 0.4 0.3 Returns Economic Condition Stock X Stock Y Recession Slow growth Moderate growth Fast growth -40 30 80 150 - 110 40 140 210

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 (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…
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 Common Stock B Probability Return Probability Return 0.25 13% 0.25 −7% 0.50 14% 0.25 7% 0.25 18% 0.25 16% 0.25 23% (Click on the icon    in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here %. (Round to two decimal places.) Part 2 The standard deviation of stock A is enter your response here %. (Round to two decimal places.) Part 3 b. The expected rate of return for stock B is enter your response here %. (Round to two decimal places.) Part 4 The standard deviation for stock B is enter…
Consider the following information: State Probability Stock A Stock B Stock C Boom 0.32 0.17 -0.11 -0.06 Bust 0.68 -0.03 -0.01 0.23 What is the expected return of a portfolio that has invested $16,157 in Stock A, $19,654 in Stock B, and   $9,659 in Stock C? (Hint: calculate weights of each stock first). Enter the answer with 4 decimals (e.g. 0.1234).
QG. The following information is available about the stocks of two companies A and B: Stock A Stock B Expected Return (%) Probability -5 12 15 20 0.05 0.55 0.35 0.05 Expected Return (%) Probability 5 15 18 20 0.05 0.65 0.20 0.10 Stock Standard Deviation of Returns (%) A B 25 35 The coefficient of correlation between the returns on A and B is 0.05. A portfolio is constructed by allocating the funds between A and B in the ratio of 2:3. Calculate the expected return on the portfolio. b. Calculate the portfolio risk.
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?
Consider the following information: State Probability Stock A Stock B Stock C Boom 0.65 0.26 -0.1 -0.08 Bust 0.35 0.15 0.16 0.18 What is the expected return on an equally weighted portfolio of these three stocks? (Hint: Equally means that each stock has the same weight. Given that there are only 3 stocks, each has a weight of 1/3) Enter the answer with 4 decimals (e.g. 0.1234).
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (5 %) (38 %) 0.2 5 0 0.5 14 21 0.1 23 27 0.1 28 38 Calculate the expected rate of return, , for Stock B ( = 12.60%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 20.20%.) 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 2.5%. 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:
Stocks A and B have the following probability distributions of expected future returns: Probability B A 0.1 (6%) (38%) 0.1 4 0 0.6 14 24 0.1 24 27 0.1 37 43 a. Calculate the expected rate of return, ^B, for Stock B (A = 14.30%.) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the standard deviation of expected returns, OA, for Stock A (σB = 20.93%.) 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? I. If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A. and hence be less risky in a portfolio sense.
You have two stocks. Stock A has a beta of 0.2, stock B has a beta of 0.7. If you want to form a portfolio using the two stocks so that the portfolio's beta is zero, then the portfolio weight for Stock A should be % (Enter a percentage. Keep 2 decimal places).
Assume you have formed a portfolio of stocks by investing $200 in stock X, $300 in stock Y, and $500 in stock Z. If the Beta for stock X, Y, and Z are -1 , 0.3 , and -1.8 respectively. What will be your portfolio Beta? (Round your answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)
Stocks A and B have the following returns: (Click on the following icon in order to copy its contents into a spreadsheet.) 123 45 Stock A 0.09 0.07 0.13 -0.01 0.09 Stock B 0.05 0.01 0.06 0.02 -0.04 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.42, what is the expected return and standard deviation of a portfolio of 60% stock A and 40% stock B?
Stocks A and B have the following returns: (Click on the following icon o in order to copy its contents into a spreadsheet.) Stock A Stock B 1 0.09 0.04 0.06 0.03 3. 0.12 0.06 4 - 0.04 0.02 5 0.09 -0.02 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.47, what is the expected return and standard deviation of a portfolio of 51% stock A and 49% stock B? a. What are the expected returns of the two stocks? The expected return for stock A is (Round to three decimal places.)

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