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- Based on the following information Calculate State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.25 0.05 -0.17 Normal 0.45 0.08 0.12 Boom 0.30 0.13 0.29 a) The expected return of Stock A b) The expected return of Stock B c) The expected return of Portfolio where you invest $15,000 in Stock A and $25,000 in Stock B d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.2. If you invest $15,000 in Stock A and $25,000 in Stock B, what is the beta of this portfolio? e) Expected return on the market (RM ) is 12% and the risk-free (rf) is 3%. What must the expected return on the portfolio according to CAPM? (Use the beta you have calculated in section d) for CAPM)Question No. 5: A rates of return of asset and market have the following distribution: Steady of Economy Probability Stock A Stock B Market Return Boom 0.3 20% 15% 15% Normal 0.4 5 5% 9 Recession 0.3 12 -10% 18 Correlation Coefficient with market -0.3 0.3 Calculate the standard deviation of return for the stock A,B and market. Calculate Beta Coefficient of stock A and B. Calculate the required rate of return of stock A & B, if you know the risk-free return 6% and market return represents expected return of market.2. What is the standard deviation of the returns on a stock given the following information? State of Economy Probability of state of Economy Rate of return if state occurs Boom 30% 15% Normal 65% 12% Recession 5% 6% Average 33% 11%
- Consider the following information: Rate of Return if State Occurs Probability of State of Economy .15 State of Economy Stock A Stock B Stock C Вoom .35 .40 .28 Good .45 .16 .17 .09 Рor .30 -.01 -.03 .01 Bust 10 -10 -12 -.09 Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) а. a. Expected return % b-1. Variance b-2. Standard deviation %Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (I) 8 % Interest rates (R) 4 % Consumer confidence (C) 6 % The return on a particular stock is generated according to the following equation: r = 16% + 1.6I + 0.8R + 1.30C + e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 4%. (Do not round intermediate calculations. Round your answer to 1 decimal place.) a-2. Is the stock over- or underpriced?The following sector model is given to you along with the factors Telecom sector model Factors Factor forecast Stock’s standardised exposure (to the telecom sector) Earnings growth +2.0% -0.34 Interest rate sensitivity +2.5% -1.29 Size -1.5% +0.45 ROE 0.0% -0.69 ROA +3.0% -0.69 The Stock’s beta is 1.1, and expected market excess return is 6%. The telecom industry’s forecast excess return is 8%. Calculate the stock’s excess return using The factor model (APT)
- Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Stock C Boom .15 .35 .45 .27 Good .55 .16 .10 .08 Poor .25 -.01 -.06 -.04 Bust .05 -.12 -.20 -.09 a) Your portfolio is invested 40 percent each in A and C, and 20 percent in B. What is the expected return of the portfolio? b) What is the variance of this portfolio? The standard deviation? Stock C .45 .27 .10 .08 -.06 -.04 -.20 -.09Measuring risk and rate return) Given the following holding-period returns, calculate the average return for the market. Month Champ Inc. Market 1 2.8% 1.8% 2 3.2% 1.2% 3 9.0% 11.0% 4 -2.6% -1.0% 5 -2.9% -4.7% 6 12.0% 8.0% answer is 2.72%What is the standard deviation of the returns on a stock given the following information? State of Economy Probability of State of Economy Rate of Return if State Occurs Boom .08 .171 Normal .70 .076 Recession .22 .017
- Listed below is the return probability distribution associated with the stocks of XYZ Company and the market portfolio under different states of the economy: State Recession Normal Boom 0.00452 O 0.00552 0.00652 Probability O 0.00752 0.4 0.3 0.3 XYZ Return What is the covariance between XYZ return and Market return? -3% 14% 20% Market Return 2% 8% 16%Given the following Information, what is the standard deviation of the returns on a portfollo that is invested 40 percent In Stock A, 35 percent in Stock B, and the remainder in Stock C? State of Probability of Economy State Occurring Growth Stagnant Multiple Choice O O O O 243% 6.72% 3.16% 1.68% .07 .93 Rate of Return if State Occurs: Stock A (%) 18.9 7.5 Stock B (%) 10.2 8.5 Stock C (%) 12.1 9.3An investment Analysist provide the following data regarding the possible future returns on AmDa’s common stock State of economy Probability ReturnRecession 0.25 -1.4%Normal 0.45 9.4%Boom 0.30 15.4%i. Compute the expected return on the security? ii. Compute the standard deviation on the security? iii. Compute the Coefficient of variation