Ebenezer Scrooge has invested 50% of his money in share A and the remainder in share B. He assesses their prospects as follows: Expected return (%) Standard deviation (X). Correlation between returns A 16 23 Required A a. What are the expected return and standard deviation of returns on his portfolio? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. b. How would your answer change if the correlation coefficient were 0 or -0.40? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. c. Is Mr. Scrooge's portfolio better or worse than one invested entirely in share A, or is it not possible to say? 0.4 Complete this question by entering your answers in the tabs below. Required B Required C Expected return Standard deviation B 21 28 What are the expected return and standard deviation of returns on his portfolio? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. 18,50 % %

Ebenezer Scrooge has invested 50% of his money in share A and the remainder in share B. He assesses their prospects as follows: Expected return (%) Standard deviation (X). Correlation between returns A 16 23 Required A a. What are the expected return and standard deviation of returns on his portfolio? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. b. How would your answer change if the correlation coefficient were 0 or -0.40? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. c. Is Mr. Scrooge's portfolio better or worse than one invested entirely in share A, or is it not possible to say? 0.4 Complete this question by entering your answers in the tabs below. Required B Required C Expected return Standard deviation B 21 28 What are the expected return and standard deviation of returns on his portfolio? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. 18,50 % %

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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Ebenezer Scrooge has invested 55% of his money in share A and the remainder in share B. He assesses their prospects as follows: A B Expected return (%) 15 19 Standard deviation (%) 22 24 Correlation between returns 0.4 a. What are the expected return and standard deviation of returns on his portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. How would your answer change if the correlation coefficient were 0 or –0.40? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) c. Is Mr. Scrooge’s portfolio better or worse than one invested entirely in share A, or is it not possible to say? multiple choice Better Worse Not possible to say
Ebenezer Scrooge has invested 50% of his money in share A and the remainder in share B. He assesses their prospects as follows: A B Expected return (%) 15 21 Standard deviation (%) 22 24 Correlation between returns 0.6 a. What are the expected return and standard deviation of returns on his portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. How would your answer change if the correlation coefficient were 0 or –0.60? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
What is portfolio A's CAPM beta based on your analysis? Round off your answer to three digits after the decimal points. State your answer as a percentage point as 1.234. Compute the Treynor measure for portfolio B. Round off your answer to three digits after the decimal point. State your answer as 1.234
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: Aaron owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three-quarters of Aaron’s portfolio value consists of HDS’s shares, and the balance consists of BSB’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 Happy Dog Soap Black Sheep Broadcasting Strong 0.50 30% 42% Normal 0.25 18% 24% Weak 0.25 -24% -30%…
(b) Assume that the covariance between Stock X and Stock Y is -0.005. Calculate the expected rate of return, variance and standard deviation of Jenny’s portfolio. {Hint: you can express your answers for the variance and standard deviation in decimals or percentage form:• For decimals, the covariance in your equation should be -0.005• For percentage, the covariance in your equation should be -50%2(= -50/10000)]
Ⓡ 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 %
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: James owns a two-stock portfolio that invests in Blue Llama Mining Company (BLM) and Hungry Whale Electronics (HWE). Three-quarters of James’s portfolio value consists of BLM’s shares, and the balance consists of HWE’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 Blue Llama Mining Hungry Whale Electronics Strong 0.25 27.5% 38.5% Normal 0.45 16.5% 22% Weak 0.30 -22%…
(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.)
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: Tyler owns a two-stock portfolio that invests in Celestial Crane Cosmetics Company (CCC) and Lumbering Ox Truckmakers (LOT). Three-quarters of Tyler’s portfolio value consists of CCC’s shares, and the balance consists of LOT’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 Celestial Crane Cosmetics Lumbering Ox Truckmakers Strong 0.20 35% 49% Normal 0.35 21% 28%…
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 4.0% + 0.50RM + eA RB = -1.2% + 0.70RM + eB = 17%; R-squarea = 0.26; R-squareB 0.18 Assume you create a portfolio Q, with investment proportions of 0.40 in a risky portfolio P, 0.35 in the market index, and 0.25 in T-bill. Portfolio Pis composed of 70% Stock A and 30% Stock B.
The historical returns for two investments-A and B-are summarized in the following table for the period 2016 to 2020, Use the data to answer the questions that follow. a. On the basis of a review of the return data, which investment appears to be more risky? Why? b. Calculate the standard deviation for each investment's returns. c. On the basis of your calculations in part b, which investment is more risky? Compare this conclusion to your observation in part a acce a. On the basis of a review of the return data, which investment appears to be more risky? Why? (Choose the best answer below.) OA. The riskier investment appears to be investment B, with returns that vary widely from the average relative to investment A, whose returns show less deviation from the average. B. The riskier investment appears to be investment A, with returns that vary widely from the average relative to investment B, whose returns show less deviation from the average. C. Investment A and investment B have equal…
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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