Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 8, Problem 8.2WUE
Summary Introduction
To discuss:
Expected return
Introduction:
Return: In financial context, return is seen as percentage that represents the profit in an investment.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose You have decided to invest 40% of
your wealth in Company A which has an
expected return of 15% and a standard
deviation of 15%, and 60% of your wealth in
Company B which has an expected return of
9% and a standard deviation of 14%. If you
wanted an expected return of 13%, what
percentage should you invest in Company A?
Select one:
a. 50%
b. 67%
c. 13%
d. 30%
lome
Four analysts cover the stock of Fluorine Chemical. One forecasts a 5% return for the coming year. The second expects the return to be -5%. The third predicts a
return of 9%. The fourth expects a 1% return in the coming year. You are relatively confident that the return will be positive but not large, so you arbitrarily assign
probabilities of being correct of 34%, 6%, 16%, and 44%, respectively, to the analysts' forecasts. Given these probabilities, what is Fluorine Chemical's expected return
for the coming year?
nents
Fluorine Chemical's expected return for the coming year is
%. (Round to two decimal places.)
Plan
on eText
media Librai
ncial Calculat
pter Resource
Enter your answer in the answer box and then click Check Answer.
amic Study
dules
Check Answer
Clear All
All
showing
mmunication Tools >
This course (Introduction to Finance (EIN-101-DOnz1 Distance Spring 2021) is hased on 7urter/Smartr: Drincinles of Managerial Finance Brief Re
P Type here to search
insert
144
fs
Suppose that you are working as a financial analyst in an investment bank. Your client is seeking your advice to invest in either Stock A or
Stock B given the market conditions in the coming year. Stock A is expected to yield a return of 35% if the market experiences a boom and a
return of 5% if the market experiences a bust. Stock B is expected to yield a return of 65% if the market experiences a boom and a return of 15%
if the market experiences a bust. According to your estimates, there is a 60% probability that the market will experience a boom and a 40%
probability that the market will experience a bust.
Calculate the expected return for each stock. Which stock would you advise your client to invest in if her/her objective is to
maximize returns regardless of the level of risk?
Chapter 8 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 8.1 - What is risk in the context of financial decision...Ch. 8.1 - Prob. 8.2RQCh. 8.1 - Compare the following risk preferences: (a) risk...Ch. 8.2 - Explain how the range is used in scenario...Ch. 8.2 - Prob. 8.5RQCh. 8.2 - Prob. 8.6RQCh. 8.2 - What does the coefficient of variation reveal...Ch. 8.3 - What is an efficient portfolio? How can the return...Ch. 8.3 - Prob. 8.9RQCh. 8.3 - How does international diversification enhance...
Ch. 8.4 - Prob. 8.11RQCh. 8.4 - Prob. 8.12RQCh. 8.4 - Prob. 8.13RQCh. 8.4 - What impact would the following changes have on...Ch. 8 - Prob. 1ORCh. 8 - Prob. 8.1STPCh. 8 - Prob. 8.2STPCh. 8 - Prob. 8.1WUECh. 8 - Prob. 8.2WUECh. 8 - Prob. 8.3WUECh. 8 - Prob. 8.4WUECh. 8 - Prob. 8.5WUECh. 8 - Prob. 8.6WUECh. 8 - Prob. 8.1PCh. 8 - Prob. 8.2PCh. 8 - Prob. 8.3PCh. 8 - Prob. 8.4PCh. 8 - Prob. 8.5PCh. 8 - Learning Goal 2 P8-6 Bar charts and risk Swans...Ch. 8 - Prob. 8.7PCh. 8 - Prob. 8.8PCh. 8 - Prob. 8.9PCh. 8 - Prob. 8.10PCh. 8 - Prob. 8.11PCh. 8 - Prob. 8.12PCh. 8 - Prob. 8.13PCh. 8 - Prob. 8.14PCh. 8 - Learning Goal 4 P8- 15 Correlation, risk, and...Ch. 8 - Prob. 8.16PCh. 8 - Learning Goal 5 P8- 17 Total, nondiversifiable,...Ch. 8 - Prob. 8.18PCh. 8 - Prob. 8.19PCh. 8 - Prob. 8.20PCh. 8 - Prob. 8.21PCh. 8 - Prob. 8.22PCh. 8 - Prob. 8.23PCh. 8 - Prob. 8.24PCh. 8 - Prob. 8.25PCh. 8 - Prob. 8.26PCh. 8 - Prob. 8.27PCh. 8 - Learning Goal 6 P8- 28 Security market line (SML)...Ch. 8 - Prob. 8.29PCh. 8 - Prob. 8.30PCh. 8 - Prob. 8.31PCh. 8 - Spreadsheet Exercise Jane is considering investing...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- A manager believes his firm will earn a return of 20.30 percent next year. His firm has a beta of 1.36, the expected return on the market is 15.90 percent, and the risk-free rate is 5.90 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required return %arrow_forwardQuestion1: A: Currently under consideration is an investment with a beta, b, of 1.50. At this time, the risk-free rate of return, RF, is 7%, and the return on the market portfolio of assets, rm, is 10%. Calculate the Required return using capm? B: An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market value of $12 million even though it experienced a loss, or negative net income, of $2.5 million. Did the analyst’s prediction prove correct? Explain using the values for total annual return.arrow_forwardK Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at $46.30 per share. She expects the price of the stock to rise to $47.65 over the next 3 years. During that time she also expects to receive annual dividends of $6.79 per share. a. What is the intrinsic worth of this stock, given a required rate of return of 12%? b. What is its expected return? BCCCID a. The intrinsic worth of this stock is $ 50.22. (Round to the nearest cent.) b. The expected return is %. (Round to one decimal place.)arrow_forward
- 53 Tucker Corporation's manager believes that the economic environment during the next year can be good, normal, or bad, and he thinks that a stock's returns will have the following probability distribution shown below. Good .50 15% Normal .20 0% Bad .30 -5% Calculate the expected rate of return Group of answer choices 3.33% 9.00% 6.00% 10.00%arrow_forwardSuppose you invest 40% of your fund in stock A and the other 60% in stock B. If stock A and B are expected to have the following returns next year, then what are the expected returns for Stock A, Stock B and your portfolio? ProbabilityStock A Stock B State of Economy Recession Boom .3 .7 13.9%; 4.8%; 10.26% 10.2%; 4.8%; 10.26% 13.9%; 4.8%; 8.44% 10.2%; 4.4%; 8.44% -12% 2% 25% 6% Telegramarrow_forwardSuppose You have decided to invest 40% of your wealth in Company A which has an expected return of 15% and a standard deviation of 15%, and 60% of your wealth in Company B which has an expected return of 9% and a standard deviation of 14%. If you wanted an expected return of 13%, what percentage should you invest in Company A? Select one: а. 50% b. 67% С. 13% d. 30%arrow_forward
- Gordon Growth Company is expected to pay a dividend of $4 next period and dividends are expected to grow at 6% per year. The required return is 16%. What is the price expected to be in year 4? Answer a. $41.6 b. $50.50 c. $40 d. $10arrow_forwardBased on five years of monthly data, you derive the following information forthe companies listed: Company SDi rm Padma 11.10% 0.82 Meghna 12.60% 0.63 Jamuna 6.60% 0.45 Karnafully 9.70% 0.70 SD on Market 7.60% 1.00 Assuming a risk-free rate of 9% and expected return for the market portfolio is 16 % compute the expected (required) return for all the stocks.arrow_forwardLisa is a graduate student from Holmes Institute who is actively involved in investment in the securities market. She had established one investment portfolio 5 years ago. Supposing that the forecast on the economic situation and returns of the portfolio will be as follows in the next year, calculate the expected return, variance and standard deviation of the portfolio. State of economy Probability Rate of returns Mild Recession 0.30 - 5% Growth 0.40 12% Strong Growth 0.30 25%arrow_forward
- 14. John Lewis of Hungerford plc may have returns next year as follows: Return probability 10% 30% 20% 20% -10% 30% -20% 20% What is the standard deviation of returns for John Lewis? A. 24.65% B. 15.86% C. 14.83% D. 22.25%arrow_forwardA. Ali is a financial analyst who observes that the spot rates of the upcoming 4 years will be as follows rl = 4.25%, r2 = 4.5%, r3 = 4.75%, and r4 = 5%. 1. Find fl, f2, f3, and f4. 2. Find 1f4 3. Find 1f3 4. Find 2f4arrow_forwardpr.1arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
