Consider the rate of return of stocks ABC and XYZ.Year12345nភ្នំឧ១៣៧.ABCABCXYZ22%10ABC1931a. Calculate the arithmetic average return on these stocks over the sample period. (Round your answers to 2 decimal places.)Arithmetic AverageXYZ36%10170-8ABCXYZb. Which stock has greater dispersion around the mean return?%c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Roundyour answers to 2 decimal places.)Geometric Average% d. If you were equally likely to earn a return of 22 %, 10 %, 19 % , 3%, or 1% in each year (these are the five annual returns for stock ABC),what would be your expected rate of return? (Do not round intermediate calculations.)Expected rate of returne. What if the five possible outcomes were those of stock XYZ?Expected rate of return.%ArithmeticGeometric%f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predictingfuture performance?

Returns refer to the income earned by the investor for a specific period, it takes into account the…

d. If you were equally likely to earn a return of 22 %, 10 % , 19 %, 3%, or 1% in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) Expected rate of return % e. What if the five possible outcomes were those of stock XYZ? Expected rate of return Arithmetic Geometric % f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance?

d. If you were equally likely to earn a return of 22 %, 10 % , 19 %, 3%, or 1% in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) Expected rate of return % e. What if the five possible outcomes were those of stock XYZ? Expected rate of return Arithmetic Geometric % f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Given the returns and probabilities for the three possible states listed below, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 8.10 percent and 11.60 percent, respectively. (Round answer to 4 decimal places, e.g. 0.0768.) Good OK Poor Covariance Probability 0.22 0.60 0.18 Return on Stock A 0.30 0.10 -0.25 Return on Stock B 0.50 0.10 -0.30
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA= 3.2% + 1.10RM + eA RB = -1.4 % + 1.25RM + eB OM= 30%; R-squareд = 0.28; R-squareg = 0.12 What is the covariance between each stock and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round your intermediate calculations. Round your answers to nearest whole number. Answer is complete but not entirely correct. Stock A Stock B Covariance 93 x 101 x
Assume that you run a regression on the raw returns of the stock of Company J against the raw returns of the market and find an intercept of 1.324 percent and a beta of 1.75. If the risk-free rate is 2.64 percent, and using the concept of Jensen's Alpha, then determine by how much this stock beat the market. Answer in decimal format, to 4 decimal places. For example, if you answer is 3.33%, enter "0.0333".
Assume that you run a regression on the raw returns of the stock of Company J against the raw returns of the market and find an intercept of 1.324 percent and a beta of 2.36. If the risk-free rate is 2.64 percent, and using the concept of Jensen's Alpha, then determine by how much this stock beat the market. Answer in decimal format. For example, if you answer is 3.33%, enter "0.0333"
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.8% + 1.25RM + eA RB = –1.8% + 1.60RM + eB σM = 18%; R-squareA = 0.24; R-squareB = 0.18 What are the covariance and correlation coefficient between the two stocks? (Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. Round your answers to 4 decimal places.)
Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16 19 4 4 1 5 2 −9 a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? A. ABC B. XYZ c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d. If you were equally likely to earn a return of 20%, 8%, 16%, 4%, or 2%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? A. Arithmetic B. Geometric
Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16 19 4 4 1 5 2 −9 (PLEASE SKIP THE FIRST THREE QUESTIONS) a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? multiple choice A. ABC B. XYZ c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d. If you were equally likely to earn a return of 20%, 8%, 16%, 4%, or 2%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future…
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA= 5.0% + 1.30RM + eA RB= -2.0% + 1.6RM + eB sigmaM= 20% ; R-squareA= 0.20 ; R-squareB= 0.12 What is the standard deviation of each stock (write as percentage, rounded to 2 decimal places)?
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.6% + 1.2RM + eA RB = -1.6% + 1.5RM + eB OM = 16%; R-squarea = 0.25; R-square; = 0.15 What is the covariance between each stock and the market index? (Calculate using numbers in decimal form, not percentages. Do not round your intermediate calculations. Round your answers to 3 decimal places.) Covariance Stock A Stock B
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.2% + 1.10RM + eA RB = –1.4% + 1.2RM + eB σM = 30%; R-squareA = 0.28; R-squareB = 0.12 What is the standard deviation of each stock? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
The index model has been estimated for stocks A and B with the following results: RA = 0.12 + 0.610RM + eA RB = 0.04 + 1.416RM + eB σM = 0.270 σ(eA) = 0.20 σ(eB) = 0.10 What is the covariance between each stock and the market index?
Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% Calculate covariance and coefficient of correlation between the returns of thestocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfoliocomprising of $45,000 invested in stock A and remaining amount in stock B.Calculate risk and return of your portfolio.

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