Consider the following information: State of Economy Probability of State of Economy Boom Bust Rate of Return if State Occurs .66 .34 Stock A .09 .23 Stock B .03 Stock C .34 .29 -.14 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 21 percent each in A and B and 58 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. a. Expected return b. Variance of portfolio 14.43 %

Consider the following information: State of Economy Probability of State of Economy Boom Bust Rate of Return if State Occurs .66 .34 Stock A .09 .23 Stock B .03 Stock C .34 .29 -.14 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 21 percent each in A and B and 58 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. a. Expected return b. Variance of portfolio 14.43 %

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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b. Consider the following information about three stocks: Probability of State of i. ii. iii. iv. State of Economy V. Boom Recession Economy 0.40 0.60 From the information given, you are required to answer the following questions. Compute the Standard Deviation for each stock. Compute the Coefficient Variation for each stock. Based on your computation in part (i) and (ii), which stock is riskier? Explain your answer. Rate of Return if State Occurs Stock Hang Stock Hang Jebat 7% 13% Tuah 28% (5%) Stock Hang Kasturi 15% 3% Assume that you have RM14,000 invested in Stock Hang Jebat whose beta is 1.5, RM19,000 invested in Stock Hang Kasturi whose beta is 2.5 and RM17,000 invested in Stock Hang Tuah whose beta is 1.6. Determine what is the beta of this portfolio. Based on your answer in part (iv), compute the required rate of return for this portfolio, given that the market rate of return is 13% and risk-free rate is 5%.
You are given the following information: State ofEconomy Return onStock A Return onStock B Bear .112 −.055 Normal .105 .158 Bull .083 .243 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4…
Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.30 0.05-0.15 Normal 0.55 0.15 0.15 Boom 0.15 0.20 0.35 Calculate the expected return for the two stocks.
Asset W has an expected return of 8.8 percent and a beta of .90. If the risk-free rate is 2.6 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations. Enter your expected returns as a percent rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places, e.g., 32.161.) Portfolio Expected Percentage of Portfolio in Asset W Portfolio Return Beta 0 % 2.60 % 25 4.15 % 0.225 50 5.70 % 0.450 75 7.25 % 0.680 100 8.80 % 0.900 125 10.35 % 1.130 150 11.90 % 1.350 If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Slope of the line
a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .45 correlation with the market portfolio and a standard deviation of 55 percent? c. Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market portfolio has a variance of…
Consider an event study of the following stock. Realised return Market return t = 0 (event day) 0.1 0.1 t =1 0.06 0.04 t = 2 0.03 0.02 t = 3 0.015 0.01 Suppose that the estimated market model is . What is the CAR (cumulative abnormal returns) for t = 3?
Based on the following information: State of Economy Probability of State of Economy Return on Stock J Return on Stock K Bear .20 -.030.024 Normal .55.128.052 Bull .25 .208.082 a. Calculate the expected return for each of the stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for each of the stocks. ( Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g , 32.16.) c. What is the covariance between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.)
Consider the following Information: Rate of Return If State Occurs State of Economy Probability of State of Economy Boom .58 Stock A .08 Stock B .17 Stock C .37 Bust .42 14 .06 -.04 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the variance of a portfolio Invested 20 percent each in A and B and 60 percent in C? (Do not round Intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) a. Expected return b. Variance %
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% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?
Consider the following information: Rate of Return If State Occurs State of Probability of State of Economy Stock A Economy Stock B Recession .15 .06 - 10 Normal .56 .09 .19 Вoom .29 .14 .36 . Calculate the expected return for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) . Calculate the standard deviation for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Stock A expected return % Stock B expected return % Stock A standard deviation % Stock B standard deviation %
Consider the following information: State of Economy Boom Bust Probability of State of Economy .75 .25 a. Expected return b. Variance of a portfolio Rate of Return if State Occurs. Stock C .27 -.21 Stock A .07 .12 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C? Note: Do not round intermediate calculations and round your answer to 6 decimal places, e.g...161616. Stock B .18 -.08 %
Consider the following information: State of Economy Boom Bust Probability of State of Economy a. Expected return b. Variance .65 .35 Rate of Return if State Occurs 16.03 % Stock A .11 .12 Stock B .19 .06 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the variance of a portfolio invested 16 percent each in A and B and 68 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) Stock C .37 -.05

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