Problem 12-16 Arithmetic and Geometric Returns [LO1] A stock has had the following year-end prices and dividends: Year Price Dividend $ 1 43.27 2 48.25 $.45 3 57.17 48 4 45.25 .60 5 52.17 .65 6 61.25 .73 What are the arithmetic and geometric average returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Arithmetic average return Geometric average return 9.56 % %

#25 A stock has an expected return of 14.00%. The risk-free rate is 2.64% and the market risk premium is 7.99%. What is the β of the stock?   Answer format: Number: Round to: 2 decimal places.

Problem 24-5 Consider the rate of return of stocks ABC and XYZ. Year 1 2 2345 FABC 22% 9 19 6 1 ABC XYZ XYZ 38% 11 19 0 -11 a. Calculate the arithmetic average return on these stocks over the sample period. (Round your answers to 2 decimal places.) Arithmetic Average %

A4 answer the questions below

8 Consider the following information on Stocks I and II: State of Economy Recession Normal Irrational exuberance a. Beta Standard deviation Probability of State of Economy .28 .63 .09 b. Beta The market risk premium is 11.3 percent, and the risk-free rate is 4.3 percent. a. Calculate the beta and standard deviation of Stock I. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. b. Calculate the beta and standard deviation of Stock II. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskier"? Rate of Return if State Occurs Stock I Stock II Standard deviation c. Most systematic risk d. Most unsystematic risk e. "Riskier" stock .035 .335 .195 % -.23 .15 .43 %

Problem 12-14 Calculating Returns and Variability (LO1) You find a certain stock that had returns of 10.3 %, -17.3%, 22.3%, and 18.3% for four of the last five years. The average return of the stock over this period was 11.6%. Assume the face value of the bond is $1,000. What was the stock's return for the missing year? (Round the final answer to 1 decimal place.) Stock's return 25.5 % * What is the standard deviation of the stock's return? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Standard deviation 17.4 %

Estimated rate of return for Stock shareholders A B Estimated price in T1 4 4 Estimated dividend in T1 0,2 12% 15% 0,5 Calculate, for both stocks, the equilibrium price in TO. With a market rate of return of 6% and a risk free rate of 1,5%, calculate the Beta of the two stocks. Which percentage of stock A and B should you buy in your portfolio so as to generate a rate of return of 13,25%? What would be the beta of this portfolio?

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Problem 13-28 SML (LO1, 4) Suppose you observe the following situation: Probability of State 0.15 0.60 0.25 State of Economy Recession Normal Irrational exuberance Stock A Stock B Rate of Return if State Occurs Stock B Stock A % -0.14 0.07 0.42 a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) Expected Return % % -0.12 0.07 0.22 b. Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.65, what is the expected market risk premium? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected market risk premium