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- Stocks A and B have the following returns: Stock A 0.09 0.04 0.13 -0.04 0.09 1 2 3 4 5 (Click on the following icon in order to copy its contents into a spreadsheet.) Stock B 0.04 0.03 0.04 0.01 -0.04 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.48, what is the expected return and standard deviation of a portfolio of 75% stock A and 25% stock B? a. What are the expected returns of the two stocks? The expected return for stock A is. (Round to three decimal places.)Stocks A and B have the following returns: (Click on the following icon in order to copy its contents into a spreadsheet.) 123 45 Stock A 0.09 0.07 0.13 -0.01 0.09 Stock B 0.05 0.01 0.06 0.02 -0.04 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.42, what is the expected return and standard deviation of a portfolio of 60% stock A and 40% stock B?The following table represents the rate of returns of two stocks in different economic conditions along with their probabilities (the data are also uploaded on moodle) RATES OF RETURN ON STOCKS EXPECTED ECONOMIC PROBABILITY STOCK A STOCK B CONDITIONS RECESSION 0.55 -0.04 -0.02 STABLE 0.35 0.25 0.30 EXPANDING 0.10 0.15 0.20 Answer the following by using mathematical calculations: a) Calculate the expected rate of return for each stock respectively. Explain what the expected value implies. b) Calculate the standard deviation for each stock respectively. Explain what the standard deviation implies. c) If you were an investor in which stock you were going to invest? Justify your answer. d) Calculate the covariance between Stock A and stock B. Discuss. e) Calculate the expected return and the standard deviation of the portfolio consisting 40% in stock A and 60% in stock B. f) Discuss the risk and return associated with investing i All of your funds in stock A ii. All of your funds in stock…
- Stocks A and B have the following returns: (Click on the following icon o in order to copy its contents into a spreadsheet.) Stock A Stock B 1 0.09 0.04 0.06 0.03 3. 0.12 0.06 4 - 0.04 0.02 5 0.09 -0.02 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.47, what is the expected return and standard deviation of a portfolio of 51% stock A and 49% stock B? a. What are the expected returns of the two stocks? The expected return for stock A is (Round to three decimal places.)8. Stocks A and B have the following returns (see Pearson MyLab Finance for the data in Excel format): Stock A Stock B 1 0.08 0.05 2 0.04 0.04 3 0.14 0.05 4 -0.05 0.01 5 0.08 -0.01 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.48 what is the expected return and standard deviation of a portfolio of 65% stock A and 35% stock B?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.(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.) Common Stock B Return 13% 14% 18% Return - 6% 7% 15% 21% a. Given the information in the table, the expected rate of return for stock A is 14.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.)Stocks A and B have the following returns: Stock A Stock B 1 0.09 0.06 0.05 0.02 3 0.13 0.05 4 - 0.01 0.02 5 0.08 - 0.03 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.48, what is the expected return and standard deviation of a portfolio of 52% stock A and 48% stock B? a. What are the expected returns of the two stocks The expected return for stock A is 1. (Round to three decimal places.) The expected return for stock B is 1. (Round to three decimal places.) b. What are the standard deviations of the returns of the two stocks? The standard deviation of the return for stock A is 1. (Round to four decimal places.) The standard deviation of the return for stock B is 1. (Round to four decimal places.) c. If their correlation is 0.48, what is the expected return and standard deviation of a portfolio of 52% stock A and 48% stock B? The expected return for the portfolio is 1. (Round to four…
- Suppose you have the following expectations about the market condition and the returns on Stocks X and Y. a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.25 0,50 0.25 Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a apreadsheet) Common Stock B Return 10% 17% 18% Return -4% 7% 13% 20% G a. Given the information in the table, the expected rate of return for stock A is 15.5% (Round to two decimal places) The standard deviation of stock A is (Round to two decimal places.)Given the following information on five stocks, construct: a. A simple price-weighted average b. A value-weighted average c. A geometric average d. What is the percentage increase in each average if the stock prices change to those in Column I? e. What is the percentage increase in each average if the stock prices change from those in the Price column to those in Column II? f. Why were the percentage changes different in parts (d) and (e)? g. If you were managing a fund and wanted a source to compare your results to, which of the three averages would you prefer to use, and why? Stock Price # of Shares I II A B C D E F $12.00 150,000 $14.00 125,000 $11.00 200,000 $ 22.00 80,000 $8.00 30,000 $29.00 140,000 $12.00 $12.00 $14.00 $14.00 $20.00 $11.00 $ 22,00 $ 22.00 $8.00 $15.00 $29.00 $29.00