EBK FUNDAMENTALS OF CORPORATE FINANCE
9th Edition
ISBN: 9781260049237
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 11, Problem 12QP
Summary Introduction
To discuss: Whether person X hope the index D in 2016 to be extra or fewer probable to change up or down by additional than 40 points in a day than in 2009.
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Suppose that expectations about the S&P 500 index and the T-bill rate are the same as they were in 2009, but you find that a greater proportion s invested in T-bills today than in 2009. What can you conclude about the change in risk tolerance over the years since 20097
You are given the following information concerning a stock and the market:
Returns
Year
Market
Stock
2014
10
%
25
%
2015
12
28
2016
13
4
2017
−14
−22
2018
37
16
2019
15
23
a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
b. Calculate the correlation between the stock and the market, as well as the stock’s beta. (Use Excel to complete the problem. Do not round intermediate calculations. Round your correlation answer to 2 decimal places and beta answer to 4 decimal places.)
On March 9, 2009, the Dow Jones Industrial Average reached a new low at a close of 6,847.20, which was down 86.04 that day.What was the return (in percent) of the stock market that day? (Negative answer should be indicated by a minus sign. Round your answer to 2 decimal places.)
Return of Stock Market : _____.__%
Chapter 11 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE
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- 3. Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on United Fund (UF), the risk-free rate (7.00%), and the required return on the United Fund (15.00%) are shown below. Based on this information, what is the required return on the market, ? Year 2011 2012 2013 2014 2015 Market -9% 11% 15% 5% -1% UF -14% 16% 22% 7% -2%arrow_forwardAssume these are the stock market and Treasury bill returns for a 5-year period: Year 2016 2017 2018 2019 2020 Stock Market Return (%) 33.30 13.20 -3.50 14.50 23.80 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) 3 Required A Required B T-Bill Return Complete this question by entering your answers in the tabs below. Standard deviation (%) 0.12 0.12 0.12 0.07 0.09 x Answer is complete but not entirely correct. Required C What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. 13.69 X % घarrow_forwardSuppose that the probability that the economy will be in a recession one year from now is 0.25. If the economy is in a recession one year from now the price of XYZ common stock will be $150. If the economy is not in a recession one year from now the price of XYZ common stock will be $200. If the current price of XYZ stock is $175, what is the standard deviation of the returns of XYZ common stock over the next year? Enter your answer as a percent without the “%”. Round your final answer to two decimals.arrow_forward
- 11. Market Indexes. The accompanying table shows annual stock prices on the Sulaco Stock Exchange in the republic of Costaguana for 2013–2018. Construct two stock market indexes, one using weights as in the Dow Jones Industrial Average and the other using weights as in the Standard & Poor’s Composite Index. (LO11-2) Please answer this question in simple steps. Find the attached screenshot with valuesarrow_forwardi need the answer quicklyarrow_forwardStocks A and B have the following historical returns: Stock A's Returns (24.25%) 18.50 38.67 14.33 39.13 Year 2015 2016 2017 2018 2019 Assume the risk-free rate during this time was 3.5%. What are the Sharpe ratios for Stocks A and B and the portfolio over this time period using their average returns? Answers: a) Sharpe ratio for Stock A b) Sharpe ratio for Stock B 0.5332 0.8839 c) Sharpe ratio for Portfolio AB Stock B's Returns 5.50% 26.73 48.25 (4.50) 43.86 Note: enter your answers with 4 decimal placesarrow_forward
- The following table shows the nominal returns on Brazilian stocks and the rate of inflation. Year Nominal Return (%) Inflation (%) 2012 0.3 7.1 2013 -13.0 7.2 2014 -11.0 7.7 2015 -42.7 12.0 2016 67.5 7.6 2017 28.2 4.2 Calculate the average real return. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places)arrow_forwardnot use ai pleasearrow_forwardThe following table shows the nominal returns on Brazilian stocks and the rate of inflation. Inflation (%) Year 2012 Nominal Return (%) 0.1 7.3 2013 -18.0 7.4 2014 -16.0 7.9 2015 2016 2017 -42.9 12.2 67.7 28.4 7.8 4.4 a. What was the standard deviation of the market returns? (Use decimals, not percents, in your calculations. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Standard deviation % b. Calculate the average real return. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places) Average real return %arrow_forward
- An analyst has estimated how a particular stock’s return will vary depending on what will happen to the economy. What is the coefficient of variation on the company's stock? OF THEECONOMY PROBABILITY OFSTATE OCCURRING STOCK'S EXPECTEDRATE IF THISSTATE OCCURS Recession Below Average Average Above Average Boom .10 .20 .40 .20 .10 (.60) (.10) .15 .40 .90arrow_forwardThe following table shows the nominal returns on Brazilian stocks and the rate of inflation. Year Nominal Return (%) 2012 0.1 -15.0 -13.0 2013 2014 2015 2016 2017 -43.4 68.2 28.9 Standard deviation a. What was the standard deviation of the market returns? (Use decimals, not percents, in your calculations. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Inflation (%) 7.8 7.9 8.4 12.7 8.3 4.9 Averano real return % b. Calculate the average real return. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places) %arrow_forwardStock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession. Stock B is expected to return 11 percent in a normal economy and 5 percent in a recession. The probability of the economy being normal is 75 percent with a 25 percent probability of a recession. What is the covariance of these two securities? A) .007006 B) .005180 C) .006274 D) .003938 (Don't Hand writing in solution) .arrow_forward
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