Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 5, Problem 6PS
The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end of year price depend on the state of the economy by the end of the year as follows: (LO 5-2)
Dividend Stock Price
Boom $2.00
50
Normal economy 1 00 43
Recession 0.50 34
a. Calculate the expected holding-period return and 4andard deviation of the holding-period return. All three scenarios are equally likely.
b. Calculate the expected return arid standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 4%.
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The stock of Business Adventures sells for $65 a share. Its likely dividend payout and end-of-year price depend on the state of the
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Boom
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0.85
Required:
a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally
likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Expected return
Standard deviation
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$73
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b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills.
The return on bills is 3%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
%
4.StockA sells for $40 a share. Its likely dividend payout and
end-of-year price depend on the state of the economy by
the end of the year as follows:
Probability
Stock Price
Boom
$50
Normal economy
42
Recession
30
50%
30%
20%
Dividend
$2.00
1.00
0.50
a.Calculate the expected holding-period return and standard
deviation of the holding
period return.
b.Calculate the expected return and standard deviation of a
portfolio invested half in
this stock and half in Treasury bills. The return on bills is 4%.
The stock of Business Adventures sells for $35 a share. Its likely dividend payout and end-of-year price depend on the state of the
economy by the end of the year as follows:
Boom
Normal economy
Recession
Dividend
$ 2.50
2.00
0.85
Stock Price
$ 43
40
31
Required:
a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally
likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Expected return
Standard deviation
%
%
b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills.
The return on bills is 3%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Expected return
Standard deviation
%
%
Chapter 5 Solutions
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - Prob. 1PSCh. 5 - Prob. 2PSCh. 5 - When estimating a Sharpe ratio, would it make...Ch. 5 - You’ve just decided upon your capital allocation...Ch. 5 - Prob. 5PSCh. 5 - The stock of Business Adventures sells for $40 a...Ch. 5 - Prob. 7PSCh. 5 - a. Suppose you forecast that the standard...Ch. 5 - Using the historical risk premiums as your guide,...Ch. 5 - What has been the historical average real rate of...
Ch. 5 - Consider a risky portfolio. The end-of-year cash...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - Prob. 17PSCh. 5 - You manage an equity fund with an expected risk...Ch. 5 - What is the reward-to--volatility (Sharpe) ratio...Ch. 5 - Download the annual returns on the combined...Ch. 5 - A portfolio of nondividend-paying stocks earned a...Ch. 5 - Which of the following statements about the...Ch. 5 - Which of the following statements reflects the...Ch. 5 - Use the following data in answering CFA Questions...Ch. 5 - Prob. 5CPCh. 5 - Lise the following data in answerifng CFA Question...Ch. 5 - Use the following scenario analysis for stocks X...Ch. 5 - Prob. 8CPCh. 5 - Use the following scenario analysis for stocks X...Ch. 5 - 10. Probabilities for three states of the economy...Ch. 5 - 11. An analyst estimates that a stock has the...Ch. 5 - Prob. 1WMCh. 5 - Prob. 2WMCh. 5 - Prob. 3WM
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