Digital ExecutiveCheeseFruitJanuary+14+7February-3+1March+5+4April+7+13May-4+2June+3+5July-2-3August-8-2Required:a-1. Calculate the variance and standard deviation of each stock.a-2. Which stock is riskier if held on its own?b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks.c. Is the variance more or less than halfway between the variance of the two individual stocks?Complete this question by entering your answers in the tabs below.Req A1Req A2Req BReq CNow calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks.Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to2 decimal places.MonthJanuaryFebruaryMarchAprilMayJuneJulyAugustPortfolioReturn< Req A2Req C >

The standard deviation indicates the degree to which a group of numbers deviates from the range. The…

Required: a-1. Calculate the variance and standard deviation of each stock. a-2. Which stock is riskier if held on its own? b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks. c. Is the variance more or less than halfway between the variance of the two individual stocks?

Required: a-1. Calculate the variance and standard deviation of each stock. a-2. Which stock is riskier if held on its own? b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks. c. Is the variance more or less than halfway between the variance of the two individual stocks?

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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Here are the returns on two stocks. Digital Executive Cheese Fruit January +16 +9 February -4 +1 March +6 +7 April +8 +16 May -5 +2 June +4 +7 July -4 August -9 -3 Required: a-1. Calculate the variance and standard deviation of each stock. a-2. Which stock is riskier if held on its own? b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks. c. Is the variance more or less than halfway between the variance of the two individual stocks? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Req C Calculate the variance and standard deviation of each stock. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Variance Standard deviation Digital Cheese Retum Executive Fruit Return % %
Here are the returns on two stocks. Digital Cheese +14 -3 +5 +7 -4 +3 -2 -8 Executive Fruit +7 +1 January February March April May +4 +12 +2 +7 -3 -2 June August Required: a-1. Calculate the variance and standard deviation of each stock. a-2. Which stock is riskier if held on its own? b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks. c. Is the variance more or less than halfway between the variance of the two individual stocks?
Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16 19 4 4 1 5 2 −9 (PLEASE SKIP THE FIRST THREE QUESTIONS) a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? multiple choice A. ABC B. XYZ c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d. If you were equally likely to earn a return of 20%, 8%, 16%, 4%, or 2%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future…
Here are the returns on two stocks. January February March April May June July August Digital Cheese +14 -4 44449 +6 +8 -5 +4 -3 -9 Executive Fruit +8 +2 +5 +12 3643 +3 +6 -4 -3 Required: a-1. Calculate the variance and standard deviation of each stock. a-2. Which stock is riskier if held on its own? b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks. c. Is the variance more or less than halfway between the variance of the two individual stocks?
Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16 19 4 4 1 5 2 −9 a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? A. ABC B. XYZ c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d. If you were equally likely to earn a return of 20%, 8%, 16%, 4%, or 2%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? A. Arithmetic B. Geometric
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.)
Here are the returns on two stocks. Digital Executive Cheese Fruit January +15 +8 February -2 +1 March +4 +6 April +6 +16 May -3 +2 June +2 +6 July -1 -2 August -7 -1 Required: a-1. Calculate the variance and standard deviation of each stock. a-2. Which stock is riskier if held on its own? b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks. c. Is the variance more or less than halfway between the variance of the two individual stocks? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Req C Calculate the variance and standard deviation of each stock. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Variance Standard deviation Digital Cheese Retum Executive Fruit Return % %
You are given the following information: State ofEconomy Return onStock A Return onStock B Bear .112 −.055 Normal .105 .158 Bull .083 .243 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…
Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?
14. Year 1 2 3 4 Find the CAPM beta of the following stock, where Rg is stock return, RM is market return, Rg Is average of stock returns, RM is average of market returns, COV (RE, RM) is covarlance between R, and R, and VAR(R) Is variance of market returns. RE 0.10 -0.10 -0.10 -0.30 RE= RE-RE CAPM beta= RM 0.05 -0.05 0.10 0.30 CAPM beta = COV(RE, RM)/VAR(RM)= RM-RM RM- Q 14. Fill in the blank in the above table and find the CAPM beta. (R-R) x (RM-R) COV(RE, RM)= (RM-RM)2 VAR(RM) -
K (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 0.20 0.60 0.20 Common Stock B Return 13% 17% 18% Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a spreadsheet.) Return -7% 5% 16% 21% www a. Given the information in the table, the expected rate of return for stock A is 16.40 %. (Round to two decimal places.) The standard deviation of stock A is 1.74 %. (Round to two decimal places.) b. The expected rate of return for stock B is 9.8 %. (Round to two decimal places.) The standard deviation for stock B is 6.12 %. (Round to two decimal places.)
3. Consider three stocks A, B and C and a market index M with the following prices: Year TO T1 T2 T3 A 85 108 110 125 B 12 14 13 15 C 50 60 70 75 M 1128 1435 1578 1786 The risk-free rate equals 4%. a. Compute the expected return and risk on each stock and the market index. b. Construct the matrix of variances and covariances between these assets. c. Construct the matrix of the correlation coefficients. d. Compute the beta coefficients of these companies and the expected return at equilibrium. e. Construct the minimum risk portfolio P1 composed of A and C. Compute the expected return and risk on this portfolio. f. Construct a portfolio P2 composed of A, B and C in proportions of 20%, 30% and 50%. Compute the expected return and risk on this portfolio. What is the contribution of each security to the return and risk pf this portfolio? g. Construct an equally weighted portfolio P3 composed of A, B, C and the risk-free rate. Compute the beta coefficient and position this portfolio with…

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