5. Given the following expectations for the next year, what is the expected return, standard deviation, and beta of Stock A? Use the excel sheet we covered to find the answer. Returns Probability Stock A Market 0.10 0.05 0.02 0.25 0.09 0.08 0.30 0.13 0.12 0.25 0.19 0.15 0.10 0.21 0.16

5. Given the following expectations for the next year, what is the expected return, standard deviation, and beta of Stock A? Use the excel sheet we covered to find the answer. Returns Probability Stock A Market 0.10 0.05 0.02 0.25 0.09 0.08 0.30 0.13 0.12 0.25 0.19 0.15 0.10 0.21 0.16

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section7.4: Valuing Common Stocks

Problem 3ST

See similar textbooks

Related questions

Q: Stocks X and Y have the following probability distributions of expected future returns: Calculate…

A: Standard deviation: The standard deviation is a measurement of the variance or dispersion of a set…

Q: a) The expected return of Stock A b) The expected return of Stock B c) The expected return of…

A: The expected return on the portfolio is the weighted average of the return generated from the…

Q: Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16…

A: Given:

Q: The following table is an analyst's best guess for the likelihood of various states of the economy…

A: Economy Probability (%) Ideal 0.2 20.0 Good 0.4 15.0 Fair 0.3 8.0…

Q: The standard deviation of stock A's returns (σA) is 34%, and the standard deviation of the market…

A: Standard deviation of stock A's returns (σA) is 34% Standard deviation of the market portfolio (σM)…

Q: Stocks C and F have the following historical returns: Year return…

A: Since you have posted multiple sub parts we will answer the first three parts for you. If you want…

Q: A stock with a beta of 1.5 has an expected rate of return of 20%. If the market return this year…

A: Calculation of rate of return on stock:Rate of return on the stock is 3.5%.The market return is 11%…

Q: Compute the mean return, variance, and standard deviation of returns, and the coefficient variation…

A: Formula to be used: Mean(X̄)=∑X/n Variance=∑ (X-X̄)^2)/n Standard deviation (SD)=√(∑(X-X̄)^2)/n…

Q: XYZ stock's returns will have the following probability distribution during the possible states of…

A: a) Expected Return = Square root of sum of (Probability * Return) b) Standard Deviation = Square…

Q: Barry wishes to compute the beta of a stock that has a correlation of 0.64 with the market. The…

A: As per our guidelines, we are supposed to answer only 3 sub-parts (if there are multiple sub-parts…

Q: I. 1. Consider stocks A and B with the following past returns: Month 1 A 3 4 4% 6% 8% | 2% в 10% 8%…

A: Weight of A is 30% Weight of B is 70% To Find: Contribution of Stock B in standard deviation of…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Calculation of standard deviation for each stock: Answer: Standard deviation of A is 31.30% Standard…

Q: For the coming year you have determined that the following possibilities are most likely for stock…

A: Working of the expected return on the stock A is shown:

Q: Based on the following information Calculate State of Economy Probability of State of Economy Rate…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: A stock with a beta of 1.2 has an expected rate of return of 14%. If the market return this year…

A: Stock return = Expected rate of return + beta (Market premium)

Q: Based on the following information Calculate State of Economy Probability of State of Economy…

A: NOTE: Since you have posted a question with multiple sub-parts, we will solve first three sub-parts…

Q: A stock with a beta of 1.6 has an expected rate of return of 15%. If the market return this year…

A: The beta of security measures the volatility of the security return in relation to the market…

Q: For the coming year you have determined that the following possibilities are most likely for stock…

A: Standard deviation expresses the variation in the average return that an investor expects from the…

Q: Stocks C and F have the following historical returns: Year return (HPY) of C return (HPY) of F 2016…

A: The presentation of the ratio of the standard deviation of the project and the average return of a…

Q: A stock with a beta of 0.8 has an expected rate of return of 12%. If the market return this year…

A: Recall the famous CAPM equation to estimate the expected rate of return on a stock:R = Rf + β x (Rm…

Q: he following shows the expected percentage returns on three stocks over the next six years: Stock…

A: (i) Calculation of expected return:- year X Y Z 1 10 8 5 2 5 4 10 3 6 4.80 12 4 8 6.4 10…

Q: You have been following a stock for 6 months and the following is its past return Year 1: -5%…

A: Expected return and standard deviation of a stock can be calculated using the below formula.…

Q: You have been given this probability distribution for the holding-period return for KMP stock: HPR…

A: economy probability HPR boom 0.3 18% normal 0.5 12% recession 0.2 -5%

Q: 88.0

A: Formula to calculate the actual return @95.44% confidence is: 95.44% = [Mean - 2*standard deviation,…

Q: Calculate the expected (required) return for each of the following stocks when the risk-free rate is…

A: With the given information, we can determine the expected return as:

Q: EXPECTED RETURN A stock's returns have the following distribution: Probability of Being in This…

A: Working note:

Q: A stock with a beta of 1.8 has an expected rate of return of 16%. If the market return this year…

A: Formula to calculate Best guess as to Rate of return = Expected rate of return + beta (Market…

Q: The return pattern on your favorite stock has been 5.39%, 8.26%, -12.04%, and 14.27% over the last…

A: In the given question we need to calculate average arithmetic and geometric rates of return from the…

Q: Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be…

A: Financial securities are the financial assets and instruments that are traded in the financial…

Q: A stock recently has been estimated to have a beta of 1.24:a. What will a beta book compute as the…

A: Part (a): Answer: Adjusted beta is 1.16

Q: You have estimated the following probability distributions of expected future returns for Stocks X…

A: Expected return of a stock refers to the amount of profit or loss that an investor can incur on his…

Q: for next The risk-free rate, re is 9%. Your probability distribution for rM year is as follows:…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: The market expects a stock to return 14.54% over the next year. The stock's beta is 0.84. If the…

A: Alpha is a term which is used to investing in the market , It represent the investing strategy and…

Q: A challenge we run into when forecasting future stock returns is that stock returns compound. So,…

Q: Stock A and B have the following probability distributions of expected future returns: Probability…

A: Answer: Expected rate of return for stock A is 15%. Standard deviation of stock B is 24%.

Q: Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in…

A: Answer : The correct answer is b. One year from now, Stock X's price is expected to be higher than…

Q: If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock's expected total return…

A: INTRODUCTION Total return for the stock is calculated by considering two factors: dividend yield…

Q: Stocks X and Y have the following probability distributions of expected future returns: Calculate…

A: Here, Probability X Y 0.3 90% -35% 0.4 15% 0 0.3 -60% 20 Expected rate of Return of X…

Q: You have observed the following returns over time: Stock X…

A: Formulas:

Q: You have observed the following returns over time: year Stock X % Stock Y % Market % 2006 14 13 12…

A: "Since you have posted a question with multiple sub-parts, we have solved the first three for you.…

Q: You build a binomial model with one period and assert that over the course of a year, the stock…

A: The standard measure of the dispersion of data which helps in measuring the risk and volatility of…

Q: XYZ stock's returns will have the following probability distribution during the possible states of…

A: Expected Return = sum of (probability * return) Variance = sum of (Probability*(Mean-Return)^2)…

Q: Consider information given in the table below and answers the question asked thereafter: State…

Q: You have observed the following returns over time: Stock X Stock Y Year Price Div Price Div Market…

A: Hi thanks for the question. Question has multiple sub parts. As per company guidelines expert should…

Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

5. Given the following expectations for the next year, what is the expected return, standard deviation,
and beta of Stock A? Use the excel sheet we covered to find the answer.
Returns
Probability
Stock A
Market
0.10
0.05
0.02
0.25
0.09
0.08
0.30
0.13
0.12
0.25
0.19
0.15
0.10
0.21
0.16

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

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

You have estimated the following probability distributions of expected future returns for Stocks X and Y: Stock X Stock Y Probability Return Probability Return 0.1 -12 % 0.2 4 % 0.1 11 0.2 7 0.3 14 0.3 11 0.3 30 0.2 17 0.2 40 0.1 30 What is the expected rate of return for Stock X? Stock Y? Round your answers to one decimal place.Stock X: % Stock Y: % What is the standard deviation of expected returns for Stock X? For Stock Y? Round your answers to two decimal places.Stock X: % Stock Y: % Which stock would you consider to be riskier? is riskier because it has a standard deviation of returns.
The next year's return on stock X is expected to be either -7% with probability 0.2 or 20% with probability 0.8. Find the stnadard deviation of the returns. a.12.37% b.11.10% c.12.88% d.11.69% e.10.80%
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 average annual returns for Stocks A and B and the Market. Which of the possible answers best describes the historical betas for A and B? Years Market Stock A Stock B 1 0.03 0.16 0.05 2 −0.05 0.20 0.05 3 0.01 0.18 0.05 4 −0.10 0.25 0.05 5 0.06 0.14 0.05 a. bA > +1; bB = 0. b. bA = 0; bB = −1. c. bA < 0; bB = 0. d. bA < −1; bB = 1. e. bA > 0; bB = 1.
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
Q3) Consider the following two companies and their forecasted returns for the upcoming year: (picture) A. What is the standard deviation of the returns on each company's stock (Company A, and B) (write all formulas). B. Of these two stocks, which is riskier? Justify your answer
. You have observed the following returns over time: Stock X Stock Y Year Price Div Price Div Market Returns 2005 20 0 11 0 0 2006 24 1.2 13 1.6 0.25 2007 26 0.5 17 0.5 0.18 2008 31 1 20 0.9 0.11 2009 33 1.5 23 1.2 0.12 2010 40 2 27 1.5 0.15 a. Calculate the annual returns for each stock (2006-2010) b. Calculate the average returns for each of the stocks and the market c. Calculate the covariance between the stocks d. Compute the portfolio return and portfolio risk if the Stock A and Stock B are combined equally in a portfolio.
For the coming year you have determined that the following possibilities are most likely for stock A: Economic State Probability Return Good 0.60 20 Bad 0.40 1 What is the expected return for stock A?
The following table is an analyst's best guess for the likelihood of various states of the economy next year and the corresponding return on the stock of EFG Corp. State of the Expected Return Economy Probability (%) Ideal 0.2 20.0 Good 0.4 15.0 Fair 0.3 8.0 Poor 0.1 -10.0 What is the expected percentage rate of return on EFG Corp. stock? Group of answer choices 3.4 10.4 10.8 11.4 not enough information
Remember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during all possible circumstances. To compute an asset's expected return under a range of possible circumstances (or states of nature), multiply the anticipated return expected to result during each state of nature by its probability of occurrence. Consider the following case: David owns a two-stock portfolio that invests in Falcon Freight Company (FF) and Pheasant Pharmaceuticals (PP). Three-quarters of David's portfolio value consists of FF's shares, and the balance consists of PP's shares. Each stock's expected return for the next year will depend on forecasted market conditions. The expected returns from the stocks in different market conditions are detailed in the following table: Market Condition Probability of Occurrence Falcon Freight Pheasant Pharmaceuticals 0.20 0.35 0.45 Strong Normal Weak 40% 24% -32% 56% 32% -40% Calculate expected returns for…
For the coming year you have determined that the following possibilities are most likely for stock A: Economic State Probability Return Good 0.60 22 Bad 0.40 -10 What is the standard deviation for stock A? answer format: show your answer in percent (without the % sign) and to 1 decimal place. For example, 12.56 should be shown as 12.6
A stock recently has been estimated to have a beta of 1.24:a. What will a beta book compute as the “adjusted beta” of this stock?b. Suppose that you estimate the following regression describing the evolution of beta over time:βt = .3 + .7βt−1What would be your predicted beta for next year?