Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 20PS
Summary Introduction
To compute: Annual
Introduction: An investor may invest in various stocks to reduce the risk of losses. Such a theory is called correlation theory. It is believed that an investor takes a lot of risk to achieve higher
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The data presented below represents the expected returns on a financial asset in different seasons of the year.
Season of year
Probability
Returns
Spring
40%
2%
Summer
35%
6%
Winter
25%
10%
What is the expected return on the asset?
ii) What is the standard deviation on the asset?
What is the covariance of the asset?
1.) On a single chart, plot the value of $1 invested in each of the five indexes over time. I.e., for all ??, plot the cumulative return series for each index: ?????? = (1 + ?��1)(1 + ?��2)...(1 + ????) What patterns do you observe? (10 points)
2.) Plot a histogram of only the Global index returns. Does the distribution look normal? (5 points)
3.) Estimate the following for each of the indices. In calculating the statistics, “monthly” can be interpreted as “not annualized”. (30 points) a. Arithmetic average of monthly returns, and annualized arithmetic return using the APR method b. Geometric average of monthly returns, and annualized geometric return using the EAR method. Why does the geometric average differ from the arithmetic average? c. Standard deviation of monthly returns, and annualized standard deviation d. Sharpe Ratio of monthly returns, and annualized Sharpe Ratio e. Skewness of monthly returns f. Kurtosis of monthly returns g. 5% Value at Risk (VaR) of…
Using the current rate method, COGS is translated using a combination of historical and average rates.
ATrue
BFalse
Chapter 7 Solutions
Investments
Ch. 7 - Prob. 1PSCh. 7 - Prob. 2PSCh. 7 - Prob. 3PSCh. 7 - Prob. 4PSCh. 7 - Prob. 5PSCh. 7 - Prob. 6PSCh. 7 - Prob. 7PSCh. 7 - Prob. 8PSCh. 7 - Prob. 9PSCh. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Prob. 12PSCh. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - Prob. 15PSCh. 7 - Prob. 16PSCh. 7 - Prob. 17PSCh. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - Prob. 21PSCh. 7 - Prob. 22PSCh. 7 - Prob. 23PSCh. 7 - Prob. 1CPCh. 7 - Prob. 2CPCh. 7 - Prob. 3CPCh. 7 - Prob. 4CPCh. 7 - Prob. 5CPCh. 7 - Prob. 6CPCh. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - Prob. 9CPCh. 7 - Prob. 10CPCh. 7 - Prob. 11CPCh. 7 - Prob. 12CPCh. 7 - Prob. 13CP
Knowledge Booster
Similar questions
- Consider the following time series: a. Construct a time series plot. What type of pattern exists in the data? Is there an indication of a seasonal pattern? b. Use a multiple linear regression model with dummy variables as follows to develop an equation to account for seasonal effects in the data: Qtr1 = 1 if quarter 1, 0 otherwise; Qtr2 = 1 if quarter 2, 0 otherwise; Qtr3 = 1 if quarter 3, 0 otherwise. c. Compute the quarterly forecasts for next year.arrow_forwardConsider the following time series data: Construct a time series plot. What type of pattern exists in the data? Use a multiple regression model with dummy variables as follows to develop an equation to account for seasonal effects in the data: Qtr1 = 1 if quarter 1, 0 otherwise; Qtr2 = 1 if quarter 2. 0 otherwise; Qtr3 = 1 if quarter 3, 0 otherwise. Compute the quarterly forecasts for next year based on the model you developed in part (b). Use a multiple regression model to develop an equation to account for trend and seasonal effects in the data. Use the dummy variables you developed in part (b) to capture seasonal effects and create a variable t such that t = 1 for quarter 1 in year 1, t = 2 for quarter 2 in year 1, … t = 12 for quarter 4 in year 3. Compute the quarterly forecasts for next year based on the model you developed in part (d). Is the model you developed in part (b) or the model you developed in part (d) more effective? Justify your answer.arrow_forwardll.2arrow_forward
- The probability distributions of expected returns for the assets are shown in the following table: Asset A Prob Return 0.2 -5% 0.4 10% 0.4 15% a) Calculate the expected return for asset A. b) Calculate the standard deviation for asset A.arrow_forwardWhich one of the following best describes an arithmetic average return? Multiple Choice A. Total return divided by N − 1, where N equals the number of individual returns B. Average compound return earned per year over a multiyear period C. Total compound return divided by the number of individual returns D. Return earned in an average year over a multiyear period E. Positive square root of the average compound returnarrow_forwardConsider the following time series data: Compute MSE using the most recent value as the forecast for the next period. What is the forecast for month 8? Compute MSE using the average of all the data available as the forecast for the next period. What is the forecast for month 8? Which method appears to provide the better forecast?arrow_forward
- Quarterly Rates of return are calculated for all properties included in the index and are based on Which two distinct components of return?arrow_forwardHow do you calculate the value at a node in a binomial tree? A. As a present value of the two possible values from the next period В. Average of the present value of the possible values from the next period OC. Sum of the present values of the two possible values from the next period D. Average of the future values of the two possible values from the next periodarrow_forwardPossible returns and their probabilities for an asset is given in the table below. The expected return is 30.25%. Calculate the standard deviation of the asset's return. Probability 0.40 0.45 0.15 13.92% O 17.84 % 18.55% O 19.09% 16.59% Return 0.52 0.17 0.12arrow_forward
- Which one of the following is defined as the average compound return earned per year over a multiyear period? Multiple Choice A Geometric average return B Variance of returns C Standard deviation of returns D Arithmetic average return E. Normal distribution of returnsarrow_forwardAssuming that the rates of return associated with a given asset investment are normally distributed; that the expected return, r, is 18.7%; and that the coefficient of variation, CV, is 1.88, answer the following questions: a. Find the standard deviation of returns, sigma Subscript rσr. b. Calculate the range of expected return outcomes associated with the following probabilities of occurrence: (1) 68%, (2) 95%, (3) 99%.arrow_forwardCalculate the arithmetic average for the following returns: Year Return O 2.4 % O 2.2% O 3.1% O 3.4% Calculate the geometric average for the following returns: Year Return O 2.2% O 2.4% O 3.1% O 3.4% Calculate the standard deviation for the following returns: Year Return O 8.4% O 8.1% O 7.6% O 7.3% 2017 12.03% 2017 12.03% 2017 12.03% 2018 -8.24% 2018 -8.24% 2018 -8.24% 2019 1.34% 2019 1.34% 2019 1.34% 2020 4.55% 2020 4.55% 2020 4.55%arrow_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
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher: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
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning