INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
expand_more
expand_more
format_list_bulleted
Question
Chapter 5, Problem 2PS
Summary Introduction
To determine: The advantages and the disadvantages of using the data to help the estimation of the expected
Introduction:
The estimation and the prediction of the future return are calculated by using the data of past years. This analysis of the past data can be helpful to get the accurate results on the future
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
based on the current variables that may impact stock demand, such as inflation, budget deficit, monetary policies, political situations, and investor's sentiment generally. Do you believe that stock prices will grow or drop this year's end based on these conditions? Justify your response using logic. Which of the following factors do you believe will have the greatest influence on stock prices?
Each stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield (which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A weighted average of those returns, using each stock's total market value, is then calculated, and that average return is often used as an indicator of the "return on the market."
Name the econometric term used for estimating the correlation between today’s stock price and the price of previous days (lag prices).
Chapter 5 Solutions
INVESTMENTS(LL)W/CONNECT
Knowledge Booster
Similar questions
- Explains how the value of the peso affects stock valuation. Assume that the expected inflation rate has just been revised upward by the market. Would the required return by investors who invest in stocks be affected? Explain.arrow_forwardA challenge we run into when forecasting future stock returns is that stock returns compound. So, when using historical averages to forecast the future, we need to average together the arithmetic and geometric average returns using Blume's Formula: R(T) = T GeoAvg + NT Arith Avg N-1 In this formula, N is the number of historical annual returns you are using to calculate your averages and T is the number of future annual returns you are forecasting. Suppose you gather the following prices for a stock in order to calculate the last 10 (N = 10) annual returns. The stock does not pay dividends. Time 0 1 Time 0 calculate the last 10 (N=10) annual returns. The stock does not pay dividends. 1 2 3 4 5 10 6 . 7 8 9 10 Price $23.16 $32.81 Price $23.16 $32.81 $33.63 $36.83 $41.95 $41.04 $33.83 $37.45 $30.56 $29.90 $47.93 Using Blume's formula, what is the expected return per year for the next 4 years (T = 4)? Enter your answer as a percentage, rounded to the nearest 0.0001. For example, for…arrow_forwardYou are analyzing a stock that has the following returns given the various states of economy. State of Economy Probability Return Recession 0.12 -7.20 Normal 0.68 6.80 Boom 0.2 15.40 What is the expected return on this stock?arrow_forward
- 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?arrow_forwardConsider the following information: a. Calculate the expected return for the two stocks. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. b. Calculate the standard deviation for the two stocks. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.arrow_forwardPlease help!arrow_forward
- What is the standard deviation of the returns on a stock given the following information? Could you please show the work? State of Economy Probability of state of Economy Rate of return if state occurs Boom 0.3000 0.1500 Normal 0.6500 0.1200 Recession 0.0500 0.0600 Average 0.3333 0.1100arrow_forwardYou are analyzing a Time Series of historic market information and found the following information for a particular investment security: the Rate of Return in 2012 was -6.72%; was 18.22% in 2013; was 7.75% in 2014; was 11.45% in 2015; was 4.94% in 2016; and was 18.11% in 2017. What is the arithmetic average rate of return? Show your answer as a percentage rounded to two places (12.34% for example). Group of answer choices 7.64% 8.96% 8.14% 7.24% None of the abovearrow_forward1.) Given this return data, the average realized return on Happy Dog Soap Inc.’s stock is _______ . 2.) The preceding data series represents a sample of Happy Dog’s historical returns. Based on this conclusion, the standard deviation of Happy Dog’s historical returns is _______ . 3.) If investors expect the average realized return on Happy Dog Soap Inc.’s stock from 2016 to 2020 to continue into the future, its expected coefficient of variation (CV) is expected to equal _______ .arrow_forward
- You have developed data which give (1) the average annual returns of the market for the past five years and (2) similar information on Stocks A and B. If these data are as follows, which of the possible answers best describes the historical beta for A and B? Please circle the correct answer: Years Market Stock A Stock B 1 .03 .16 .05 2 -.05 .20 .05 3 .01 .18 .05 4 -.10 .25 .05 5 .06 .14 .05 a. bA > 0; bB = 1. b. bA > +1; bB = 0. c. bA = 0; bB = -1. d. bA < 0; bB = 0. e. bA < -1; bB = 1.arrow_forwardAn 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_forwardSuppose 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 20097arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning