b. Consider the following information about three stocks: Probability of State of Economy 0.40 0.60 ii. iv. State of Economy V. Boom Recession Rate of Return if State Occurs Stock Hang Stock Hang Jebat 7% 13% From the information given, you are required to answer the following questions. i. Compute the Standard Deviation for each stock. Tuah 28% (5%) Stock Hang Kasturi 15% 3% Compute the Coefficient Variation for each stock. Based on your computation in part (i) and (ii), which stock is riskier? Explain your answer. 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%.

b. Consider the following information about three stocks: Probability of State of Economy 0.40 0.60 ii. iv. State of Economy V. Boom Recession Rate of Return if State Occurs Stock Hang Stock Hang Jebat 7% 13% From the information given, you are required to answer the following questions. i. Compute the Standard Deviation for each stock. Tuah 28% (5%) Stock Hang Kasturi 15% 3% Compute the Coefficient Variation for each stock. Based on your computation in part (i) and (ii), which stock is riskier? Explain your answer. 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%.

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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(c) Consider information given in the table below and answers the question asked thereafter: i. Calculate expected return on each stock? On the basis of this measure, which stock you will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of this measure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of this measure, which stock you will choose?iv. Calculate covariance and coefficient of correlation between the returns of the stocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfolio comprising of $35,000 invested in stock A and remaining amount in stock B. Calculate risk and return of your portfolio. (d) Firm A reports a Profit Margin of 6.5% and a Total Asset Turnover Ratio of 3.25. Their total asset level is $8,500,000. Assume there are 700,000 shares outstanding and the PE ratio is 11. Also, assume the Return on Equity is 16%. Based on this, calculate…
1. Calculate the Expected Return, Standard Deviation, and Beta for each stock. 2. Which stock has more systematic risk and which one has more unsystematic risk? Which stock is "riskier"? Explain your answer completely. Use excel to show formulas and calculations
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 0.25 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.)
Consider the below graph: E(R₁) E(RM) R₁ stocks M O stocks O What is the slope of the graph? If the historical return of an individual stock is lying the slope then the stock is undervalued or overvalued?
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(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.) ew an example Get more help. T 3 a. Given the information in the table, the expected rate of retum for stock A is 15.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.) E D 80 73 Return. 12% 16% 18% U с $ 4 R F 288 F4 V Common Stock B % 5 T FS G 6 Return -7% 7% 13% 21% B MacBook Air 2 F& Y H & 7 N 44 F? U J ** 8 M | MOSISO ( 9 K DD O . Clear all : ; y 4 FIX { option [ + = ? 1 Check answer . FV2 } ◄ 1 delete 1 return shift
Q1: Explain the meaning and significance of a stock's beta coefficient. Illustrate your explanation by drawing, on one graph, the characteristic lines for stocks with low, average, and high risk. (Hint: Let your three characteristic lines intersect at r_i=r_m=6%, the assumed risk-free rate.) Q2: Define the following terms, using graphs or equations to illustrate your answers where feasible. a) Risk, stand-alone risk b) Expected rate of return c) standard deviation, variance d) risk premium for stock i, market risk premium e) Capital Asset Pricing Model (CAPM) f) Expected return on a portfolio g) market risk, diversifiable risk h) Beta i) Security Market Line; SML equation j) Slope of SML and its relationship to risk aversion. Q3. Differentiate between (a) stand-alone risk and (b) risk in a portfolio context. How are they measured, and are both concepts relevant for investors? Q4. Can an investor eliminate market risk from a portfolio of common stocks? How many stocks must a portfolio…
Questions: a. Compute the expected return for stock X and for stock Y b. Compute the standard deviation for stock X and for stock Y. c. Determine the best course to take for investing.
Using the data in the following table,, estimate the: a. Average return and volatility for each stock. b. Covariance between the stocks. c. Correlation between these two stocks.
Q2) Consider the below graph: E(R₁) Ans: E(RM) R₁ stocks M O stocks O What is the slope of the graph? If the historical return of an individual stock is lying the slope then the stock is undervalued or overvalued? Ans: Slope of the Graph is called= B

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