a. A stock has an annual return of 13 percent and a standard deviationof 60 percent. What is the smallest expected gain over the next yearwith a probability of 1 percent? (Do not round intermediatecalculations. Round the z-score value to 3 decimal places whencalculating your answer. Enter your answer as a percent rounded to 2decimal places.)Smallest expected gain⇒. Does this number make sense?YesNo%

The smallest expected loss or gain depicts that if the probability of unfavorable circumstances is…

A stock has an annual return of 13 percent and a standard deviation 60 percent. What is the smallest expected gain over the next year th a probability of 1 percent? (Do not round intermediate Iculations. Round the z-score value to 3 decimal places when culating your answer. Enter your answer as a percent rounded to 2 cimal places.)

A stock has an annual return of 13 percent and a standard deviation 60 percent. What is the smallest expected gain over the next year th a probability of 1 percent? (Do not round intermediate Iculations. Round the z-score value to 3 decimal places when culating your answer. Enter your answer as a percent rounded to 2 cimal places.)

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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a. A stock has an annual return of 10 percent and a standard deviation of 66 percent. What is the smallest expected loss over the next year with a probability of 2.5 percent? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places. Smallest expected loss b. Does this number make sense? Yes O No %
Suppose =6%, 11%, and by = 1.3. a. What is n, the required rate of return on Stock I? Round your answer to one decimal place. % b. 1. Now suppose nr increases to 7%. The slope of the SML remains constant. How would this affect г and n? I. г will increase by 1 percentage point and r will remain the same. II. Both г and n will decrease by 1 percentage point. III. Both г and will remain the same. IV. Both г and n will increase by 1 percentage point. -Select- V. r will remain the same and will increase by 1 percentage point. 2. Now suppose FRF decreases to 5%. The slope of the SML remains constant. How would this affect and n? I. г will decrease by 1 percentage point and r, will remain the same. II. г will remain the same and r will decrease by 1 percentage point. III. Both г and n will increase by 1 percentage point. IV. Both г and n will remain the same. V. Both г and will decrease by 1 percentage point. -Select- ✓ c. 1. Now assume that RF remains at 6%, but г increases to 12%. The slope…
Abnormal returns, if a stock has a(Alpha)=.004, b(Beta)=1.2, A. Using the market model (eq. 7.4), find the expected percent return if the market increases by 2%. B. If the actual return is 2%, 3%, or 4%, calculate the abnormal return.
Ⓡ Suppose the returns on a particular asset are normally distributed. Also suppose the asset had an average return of 11.1% and a standard deviation of 23.4%. Use the NORMDIST function in Excel to determine the probability that in any given year you will lose money by investing in this asset. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.): Probability %
Suppose TRF = 4%, TM = 9%, and b = 1.1. a. What is n, the required rate of return on Stock i? Round your answer to one decimal place. % b. 1. Now suppose rar increases to 5%. The slope of the SML remains constant. How would this affect ry and n? I. ry will increase by 1 percentage point and n will remain the same. II. Both ry and r, will decrease by 1 percentage point. III. Both rm and r, will remain the same.. IV. Both r and r, will increase by 1 percentage point. V. r will remain the same and r, will increase by 1 percentage point. -Select- v 2. Now suppose rar decreases to 3%. The slope of the SML remains constant. How would this affect ry and n? I. TM will decrease by 1 percentage point and n will remain the same. II. rs will remain the same and n will decrease by 1 percentage point. III. Both ry and r, will increase by 1 percentage point. IV. Both ry and r, will remain the same. V. Both ry and r, will decrease by 1 percentage point. Select
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
Stocks A and B have the following probability distributions of expected future returns: profitability A B 0.1 11% 27% 0.2 3 0 0.4 12 20 0.2 24 28 0.1 36 43 Calculate the expected rate of return, , for Stock B ( = 12.70%.) Do not round intermediate calculations. Round your answer to two decimal places.   % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.54%.) Do not round intermediate calculations. Round your answer to two decimal places.   % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be…
Suppose rRF = 5%, rM = 10%, and rA = 11%. Calculate Stock A's beta. Round your answer to one decimal place.    If Stock A's beta were 1.8, then what would be A's new required rate of return? Round your answer to one decimal place.   %
Required Rate of Return Suppose rRF = 3%, rM = 8%, and rA = 7%. Calculate Stock A's beta. Round your answer to one decimal place.    If Stock A's beta were 1.1, then what would be A's new required rate of return? Round your answer to one decimal place.   %
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?
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.
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

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