Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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I am currently working on some practice problems for my finance class and am unsure how to set up and calculate the following problems:
1) use the following information for the next two problems
you have concluded that next year the following relationships are possible:
| economic status | probability | |
| weak economy | .15 | -5% |
| static economy | .60 | 5% |
| strong economy | .25 | 15% |
a) what is your expected rate of return [E(Ri)] for next year? - I calculated this portion and got 6.00% which is the answer but part B is where I got stuck
b) compute the standard deviation of the rate of return for the one year period?
2) use the following information for the next two problems
| asset a | asset b |
| E(Ra) = 10% | E (Rb) = 15% |
| st.dev a = 8% | st.dev 9.5% |
| Wa = 0.25 | Wb = 0.75 |
Cov AB = 0.006
a) what is the expected return of a portfolio of two risky assets if the expected return, standard deviation, covariance, and asset weight are shown as above?
b) what is the standard deviation of this portfolio?
3) what is the expected return of the three stock portfolios described below?
| common stock | market value | expected return |
| ando inc | 95000 | 12.% |
| bee co. | 32,000 | 8.75% |
| cool inc. | 65000 | 17.7% |
4) the expected return for a stock, calculated using the
Last three problems are attached as images (22-24)
Transcribed Image Text:D) Treasury bills, government bonds,
company stocks.
Use the following to answer questions 22-23:
Idaho Slopes (IS) and Dakota Steppes (DS) are both seasonal businesses. IS is a
downhill skiing facility, while DS is a tour company that specializes in walking tours and
camping. The likely returns on each company over the next year is expected to be:
Idaho Slopes
Dakota Steppes
Economy
Strong Downturn
Mild Downturn
Slow Growth
%9
Moderate Growth
Strong Growth
22. The mean expected returns of Idaho Slopes and Dakota Steppes are:
A) 4.0%; 6.0% B) 4.4 % ; 4.6% C) 5.5 % ; 5.8% D ) 10.0%; 6.0% E ) None of these
23.
The variances of Idaho Slopes and Dakota Steppes are:
A) .0145; .00038
B) .011584; .000304
C) .006454; .000 1 54
D) .0008068; .000193
E) None of the above
The variance of Stock A is .004, the variance of the market is .007 and the
covariance between the two is .0026. What is the correlation coefficient?
24.
A) .9285 B) .8542 C) .5010 D) .4913 E) .35 10
If the correlation between two stocks is +1, then a portfolio combining these two
stocks will have a variance that is:
25.
A) less than the weighted average of the two individual variances.
B) greater than the weighted average of the two individual variances.
C) equal to the weighted average of the two individual variances.
D) less than or equal to average variance of the twn weighted varian
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