Quèstion 12 What is the covariance of returns between stocks A and B? Expected retum of A is 30% and B's expected retum 23.333333% Year Retum A Return B 2017 40% 55% 2016 bo% 35% 2015 20% 20% O 0.025 00 O 0.07 O None of the listed items is correct O 0.095
Q: The Walkers are saving up to go on a family vacation in 3 years. They invest $2900 into an account w...
A: Here, Present value = $2,900 Interest rate = 1.27% compounded quarterly Number of years = 3 years To...
Q: g. Find the coupon dollar value and coupon rate of a bond that has face value of S1,000, YTM of 6.55...
A: Bond: A bond is a debt instrument issued by the company (issuer) to raise debt capital from the inv...
Q: Ratios For Amazon.com, Inc. (AMZN) 20...
A: Ratio analysis includes the computation of ratios using elements of financial statements by keeping ...
Q: Yebeng Sdn Bhd operates a very successful chain of shoes shop in Malaysia. The company needs to rais...
A: To Find: Cost of Capital WACC
Q: Find the future value of this loan. $22,102 at 11.2% for 11 months The future value of the loan is $
A: SOLUTION : GIVEN, Present value = $22,102 Rate = 11.2% = 0.112 Times = 11 months = 11 Now, Calcula...
Q: The VSE Corporation currently pays no dividend because of depressed earnings. A recent change in man...
A: The price of stock is equal to the present value of all future dividends and the future price of sto...
Q: 1. Elimann Systems is considering a project that has the following cash flow and cost of capital (r)...
A: Cost of capital = 9.00% Year Cash flow 0 -1000 1 500 2 500 3 500
Q: To help with his child's college fund, Ravi needs to invest. Assuming an interest rate of 2.23% comp...
A: Interest Rate 2.23% Time Period 15 Future Value $ 94,300.00
Q: Everest Inc's preferred stock pays a dividend of $1.40 per quarter, and it sells the preferred stock...
A: SOLUTION : GIVEN, Everest incs preferred stock price = $27.15 per share Dividend per quarter = $1.40...
Q: A 5-year project will require an investment of $100 million. This comprises of plant and machinery w...
A: Since you have posted a question with more than three sub-parts, we will solve the first three sub-p...
Q: Twelve months ago, you purchased the shares of a no-load mutual fund for $22.25 per share. The fund ...
A: Return = Dividend + Capital cain +(Closing price - Opening price)Opening price Given, Purchase pric...
Q: Sara owns a small business and plans on retiring in 5 years. Given his past experiences, she expects...
A: To find if it is a good investment, the calculation for the required return should be done first. Af...
Q: (1) A 5-year auto loan for $20,000 has monthly payments at an 8% nominal annual rate. If the borrowe...
A: Annual percentage rate (APR) refers to the annual interest rate charged to borrowers or investors. A...
Q: You have found three investment choices for a one-year deposit: 9.1% APR compounded monthly, 9.1% AP...
A: Solution:- Effective Annual Rate (EAR) means the effective rate for a year after effect of all the c...
Q: An FSA can be used to pay for over-the-counter as well as prescription medications. Kendra bought th...
A: FSA or Flexible spending account is an employer sponsored healthcare benefit. This account allows t...
Q: A closed-end investment company has a net asset value of $12.75. A year ago the shares sold for a 24...
A: Investment means engaging your funds to generate income for the future. Return on investment means ...
Q: Imagine you work for a company that uses gainsharing. Do you think you would like it? Why or why not...
A: Gainsharing is a management system that encourages employees to improve their performance by involvi...
Q: Which of the following statements concerning the Efficient Market Hypothesis is correct? Select one...
A: Share prices, according to the efficient market hypothesis represents all the information available ...
Q: You recently went to work for Allied Components Company, a supplier of auto repair parts used in the...
A: Here, Discount rate = 10% To Find: IRR of each project =? Payback Period =?
Q: distributed cash dividends of $0.60 and capital gains of $1.40 per share. If the net asset value of ...
A: Return on Investment: It is a measure of performance applied to evaluate the profitability of an in...
Q: What perpetual amount will you receive annually starting next year if you were able to deposit 130,...
A: Here, Amount Deposited five years ago is 130,000 Interest Rate is 10.5% Compounding Period is Annual...
Q: Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an av...
A: Risk can be compared on the basis of coefficient of variation. Higher the coefficient of variation, ...
Q: The payback method helps firms establish and identify a maximum acceptable payback period that helps...
A: Payback period is the number of years required to recover the initial investment in the project. Ans...
Q: Answer the following probiems: 1. The buyer of a car pays P 169,000 cash and P 12,000 every month fo...
A: Solution:- Cash price means the amount payable in today’s terms. So, cash price = Down payment + Pre...
Q: a. What is this investment's internal rate of return? IRR = % Do all %3D
A: Internal rate of return (IRR) of an alternative refers to the rate at which the Net present value (N...
Q: (a) The amaunt af Interest included in the September payment (round your answer to the nearest cent)...
A: Loan amortization refers to a schedule which is prepared to shows the periodic loan payments, amount...
Q: ategies that a hospital must do to achieve financ
A: Financial health is necessary for any organization and this is very important to maintain and grow f...
Q: nnual report of 2019 which shows an EBITDA of P5,000,000 and a total liability of P15,550,000. Evide...
A: Corporate valuation is a process of evaluating the worth of a company entity in the realm of finance...
Q: interest is 6 percent and the expected retun on the market is 11 percent. What is the market risk pr...
A: Market risk premium is the difference between expected return from market and risk free rate. Market...
Q: (d) BB&T offers an account with 5.69 % interest compounded quarterly. APY = Number (e) Navy Federal ...
A: APY or annual percentage yield is the actual rate of return earned on the investment
Q: urvivorship
A: A life insurance policy refers to the contract between a person and the insurance company. An insu...
Q: A 5-year project will require an investment of $100 million. This comprises of plant and machinery w...
A: Capital Budgeting: It is the planning process which is undertaken by business to analyse potentia...
Q: I need help explaining the graphs, below please.
A: Cash flow from financing activities: It shows the cash inflow and outflow from a company's financing...
Q: The Philippines’ Bench clothing has just completed a feasibility study of what to do with the 16,000...
A: Initial Cost P 1,00,00,000.00 Saving P 28,00,00...
Q: 3. Rey borrowed P 40,000 at 12 % compounded semiannually. He agreed to pay the lender semiannually a...
A: Given that equal amount shall be paid till the end of 8th year and 6000 shall be paid at the end of ...
Q: Assume that a bond will make payments every six months as shown on the following timeline (using six...
A: Assuming that the bond has been issued and is being redeemed at par itself. Coupon rate is the rate ...
Q: What amount will be paid at the beginning of every month for 10 years if the present value is 20O, 0...
A: The payment flow which continues for a definite time period and terminates after lapse of time perio...
Q: Based on the table below, you invested 40% on Stock A and B and 20% on Stock Calculate the expected ...
A: Expected return The expected return refers to the profit or loss that is anticipated by an investor ...
Q: a single bank faces a required reserve ratio of 20 percent, has total reserves of $500,000, and chec...
A: The maximum amount of money that this bank can increase is the amount of its excess reserves. Amoun...
Q: Consider the following information and then calculate the required rate of return for the Global Equ...
A: since: Where: Ra = Expected return on an investment Rrf = Risk-free rate Ba = Beta of the investme...
Q: who are still dependent. He received a $150,000 lump-sum retirement bonus and will receive $2,800 pe...
A: Prices increase each year by the rate of inflation and may grow to double from existing levels over ...
Q: What is the price of the first bond (and the second bond) and Calculate j.
A: Bond valuation refers to a method which is used to compute the current value or present value (PV) o...
Q: One of your Taiwanese suppliers has bid on a new line of molded plastic parts that is currently bein...
A: NPV It provides the net present value or worth of an investment. If NPV is calculated considering al...
Q: You expect to retire in 25 years. After you retire, you want to be able to withdraw $3000 dollars fr...
A: Present Value: The present value is the value of cash flow stream or the fixed lump sum amount at t...
Q: Evan and Emmanuel want to buy a $250,000 home. They plan to pay 15% as a down payment, and take out ...
A: Cost of House is $250,000 Down payment is 15% Term of loan is 30 years Interest rate is 4.9% To Find...
Q: Student B placed his allowance amounting to P 5000 in a savings account with a nominal interest rate...
A: Amount placed (A) = P 5000 r = 5% per annum = 5%/12 per month = 0.4167% per month n = 5 years = 60 m...
Q: A 5-year project will require an investment of $100 million. This comprises of plant and machinery w...
A: Cashflows means movement of cash it may be inflow or outflow. For the purposes of capital decision,...
Q: ZDL Ltd's earnings per share next year is expected to be $1.50 and the earnings are expected to grow...
A: Present value of growth opportunities (PVGO) is calculated as per the formula.
Q: How much will you have saved after 6 years by contributing 1,200 at the end of each year if you expe...
A: Future Value of Ordinary Annuity refers to the concept which determines the sum total of all the cas...
Q: Calculate the Black-Scholes price of a Call option where: S = $50 K = $45 %3D T-t=.25 O = .20 r = .0...
A: Stock Price S $ 50.00 Strike Price K $ 4...
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images
- Intro We know the following expected returns for stocks A and B, given different states of the economy: State (s) Probability E(rA.s) E(rB,s) -0.1 0.04 0.08 0.05 0.13 0.07 Recession 0.2 Normal 0.5 Expansion 0.3 Part 1 What is the expected return for stock A? 3+ decimals SubmitA Moving to another question will save this response. Quèstion 8 What is the covariance of returns between stocks A and B? Year Returm A Retum B 2017 60% 35% 2016 20% 15% 2015 -20% -20% None of the listed items is correct O 733.33%2 O 27.08%2 O 20.00%2 O 10.00%2 A Moving to another question will save this response. MacB esc 20 F3 O00 F4 F2 F5 $ 4 # 3> A Moving to another question will save this response. Question 15 What is the standard deviation of Ava's stock, giving the following information: Year 2014 2015 2016 Return 0.06 0.09 0.13 O 0.0918% O 0.1124% O None of the listed items is correct O 0.0918 O 0.1124 A Moving to another question will save this response. MacBoc esc 20 F3 F1 F2 O00 F4 F5 2$ 2 6. W E R #3
- Given the information in the table below, what is the covariance between the return series of stock A and B. Round your answer! A B Year Past Returns Past Return 2017 20 16 2018 2 12 2019 -2 9 ER] 6.67 11.33 STD 11.72 3.51 W 50.00% 50.00% PAB 0.9638 None of the answers is correct 55.24 50.33 33.12 39.65Suppose you observe the following situation: Probability of State 0.35 0.40 0.25 State of Economy Recession Normal Irrational exuberance Stock A Stock B Expected Return Rate of Return if State Occurs Stock B % Stock A a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) -0.11 0.10 0.45 -0.09 0.10 0.25 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 premiumSuppose you observe the following situation: Probability of State 0.25 0.45 0.30 State of Economy Recession Normal Irrational exuberance Stock A Stock B % % Rate of Return if State Occurs Stock B Stock A a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) Expected Return % -0.12 0.09 0.44 -0.10 0.09 0.24 b. Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.75, what is the expected market risk premium? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected market risk premium
- A Moving to another question will save this response. Quèstion 18 What is the expected retum of the following portfolio? E(R) -0.11 0.09 0.05 Stock Beta 1.9 2.0 0.6 Investment $210,000 $30,000 $50,000 B IC O -0.0407% O None of the listed items is correct O 0.0100 O 0.0100% O -0.0407 A Moving to another question will save this response. MacBook Air Sc 20 F3 000 O00 F4 F1 F5 F6 $ 4 Q W E R Y %#3Consider the following information: Rate of return State of Economy Probability Stock A Stock B Recession 0.30 -40% 6% Normal 0.50 18% 4% Воom 0.20 142% 2% [Note: take full decimal places in the middle steps and round your FINAL answer to 2 decimal places (i.e. S1.23 or 1.23%)] (a) Calculate the expected return for the two Stocks A and B respectively. (in %) (b) Calculate the standard deviation for the two Stocks A and B respectively. (in %) (c) If you have $2 million to invest in a stock portfolio and your goal is to create a portfolio with an expected return of 16.92%, how much money will you invest in Stock A and Stock B respectively? (d) Based on your answer in part (c), calculate the standard deviation for the portfolio. (in %) (e) If enough stocks (i.e. 100 randomly selected stocks) had been included in the portfolio, what happen to the standard deviation for the portfolio? Explain. [within 100 words]37. An analyst developed the following probability distribution of the rate of return for a common stock: Rate of return Scenario Recession -0.05 0.10 0.25 What's the standard deviation of the rate of return? Show your calculations. n k=ZkP |o= i=1 A. 0.0549. B. 0.0649. Normal Boom . 0.0749. D. 0.0849 E. 0.0949. 건 Probability 0.20 0.60 0.20 i-1 (k₂ − Ê)² P₂.
- Consider the following information: Probability of Rate of Return if State Occurs State of Economy Economy Recession Stock A .040 Stock B 21 -31 Normal .61 120 21 Boom .18 200 44 a. Calculate the expected return for the two 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 the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return of A % Expected return of B % b. Standard deviation of A % Standard deviation of B %Consider the following information: Rate of Return If State Occurs State of Probability of State of Economy Stock A Stock B Economy Recession Normal .17 .05 .09 21 .62 .08 .25 Boom .21 16 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 declmal 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.) a. Stock A expected return Stock B expected return b. Stock A standard deviation Stock B standard deviationThe following three stocks are available in the market: E(R) В 10.4% 1.26 Stock A Stock B 13.6 1.06 Stock C 16.1 1.46 Market 14.0 1 Assume the market model is valid. a. The return on the market is 14.8 percent and there are no unsystematic surprises in the returns. What is the return on each stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Assume a portfolio has weights of 30 percent Stock A, 45 percent Stock B, and 25 percent Stock C. The return on the market is 14.8 percent and there are no unsystematic surprises in the returns. What is the return on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Stock A a. Stock B a. Stock C b. Portfolio return -26.75 % % % %