E Consider the following information: Probability of Rate of Return if State Occurs Economy Recession State of Economy Stock A Stock B .22 .045 -.42 Normal Boom .62 .16 .125 .310 32 .55 a. Calculate the expected return for the two stocks. Note: Do not round Intermedlate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. Calculate the standard deviation for the two stocks. Note: Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B 56 96 96 96

E Consider the following information: Probability of Rate of Return if State Occurs Economy Recession State of Economy Stock A Stock B .22 .045 -.42 Normal Boom .62 .16 .125 .310 32 .55 a. Calculate the expected return for the two stocks. Note: Do not round Intermedlate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. Calculate the standard deviation for the two stocks. Note: Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B 56 96 96 96

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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Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Probability of State of Security Return if State Occurs State of Economy Recession Economy 0.30 Normal Вoom -6.5% 9.0 16.6 0.55 0.15
You are given the following information: State of Economy Bear Normal Bull Return on Stock A a. Stock A Stock B b. Stock A Stock B 114 103 085 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.) Return on Stock B C.…
Based on the following information: State of Economy Probability of State of Economy Return on Stock J Return on Stock K Bear .20 -.030.024 Normal .55.128.052 Bull .25 .208.082 a. Calculate the expected return for each of the stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for each of the stocks. ( Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g , 32.16.) c. What is the covariance between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.)
Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Probability of State of Security Return if State Occurs State of Economy Economy 0.40 Recession Normal -5.50% 11.00 0.40 0.20 Вoom 17.00
Consider the following information: Rate of Return If State Occurs State of Probability of State of Economy Stock A Economy Stock B Recession .15 .06 - 10 Normal .56 .09 .19 Вoom .29 .14 .36 . Calculate the expected return for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) . Calculate the standard deviation for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Stock A expected return % Stock B expected return % Stock A standard deviation % Stock B standard deviation %
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
You are given the following information: Return on State of Economy Stock A Bear Normal Bull Return on Stock B 111 -.054 157 106 .082 242 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .321616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .3216.) a. Stock A expected return…
Consider the following information about Stocks I and ll: Rate of Return If State Occurs Probability of State of- Economy .15 State of Economy Stock I Stock II Recession .05 -.21 Normal .70 .18 .10 Irrational exuberance .15 .07 .39 The market risk premium is 7 percent, and the risk-free rate is 3.5 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.) The standard deviation on Stock l's return is percent, and the Stock I beta is The standard deviation on Stock Il's return is percent, and the Stock II beta is Therefore, based on the stock's systematic risk/beta, Stock is riskier.
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?
The market and Stock J have the following probability distributions: Probability rM rJ 0.3 14 % 18 % 0.4 10 4 0.3 18 13 Calculate the expected rates of return for the market and Stock J. Round your answers to one decimal place. Expected rate of return (Market): % Expected rate of return (Stock J): % Calculate the standard deviations for the market and Stock J. Do not round intermediate calculations. Round your answers to two decimal places. Standard deviation (Market): % Standard deviation (Stock J): %
Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .17 .08 −.12 Normal .58 .11 .17 Boom .25 .16 .34 a. Calculate the expected return for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Consider the following information: Rate of Return If State Occurs State of Probability of State of Economy Economy Stock A Stock B Recession .22 .07 -22 Normal .52 .10 .07 Boom .26 .15 .24 a. Calculate the expected return for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

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