Suppose that the annual return for a particular stock follows the same distribution every year, and that the return for any given year is independent of the returns for any prior years. Based on an analysis of the stock's annual returns over an 12 year period, it is determined that the 95% confidence interval for the stock's expected annual return is given by (-0.1724, 0.2861). Find the volatility of the stock. Use the approximation formula from Berk and DeMarzo. 38.52% 40.90% 42.09% 37.32% 39.71%

Suppose that the annual return for a particular stock follows the same distribution every year, and that the return for any given year is independent of the returns for any prior years. Based on an analysis of the stock's annual returns over an 12 year period, it is determined that the 95% confidence interval for the stock's expected annual return is given by (-0.1724, 0.2861). Find the volatility of the stock. Use the approximation formula from Berk and DeMarzo. 38.52% 40.90% 42.09% 37.32% 39.71%

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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Stocks A and B have the following probability distributions of expected future returns: Probability 0.1 (15%) (31%) 0.1 5 0 0.6 15 18 0.1 0.1 22 31 30 49 a. Calculate the expected rate of return, B, for Stock B (A = 13.30%.) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the standard deviation of expected returns, GA, for Stock A (σ = 19.42%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? I. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. II. If Stock B is more highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be less risky in…
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The next year's return on stock X is expected to be either -7% with probability 0.2 or 20% with probability 0.8. Find the stnadard deviation of the returns. a.12.37% b.11.10% c.12.88% d.11.69% e.10.80%
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (7 %) (26 %) 0.1 3 0 0.5 14 22 0.2 20 26 0.1 36 50 Calculate the expected rate of return, , for Stock B ( = 14.20%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.68%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. If Stock B is more highly correlated with the market than A, then it might have a higher…
Year End Index Realized Return 2000 23.6% 2001 24.7% 2002 30.5% 2003 9.0% 2004 -2.0% 2005 -17.3% 2006 -24.3% 2007 32.2% 2008 4.4% 2009 7.4%
Suppose that during the coming year, the risk free rate, rRF, is expected to remain the same, while the market risk premium (rM − rRF), is expected to fall. Given this forecast, which of the following statements is CORRECT? a. The required return on all stocks will remain unchanged. b. The required return will fall for all stocks, but it will fall more for stocks with higher betas. c. The required return for all stocks will fall by the same amount. d. The required return will fall for all stocks, but it will fall less for stocks with higher betas. e. The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.
The returns of a stock follow the normal distribution, with average return of 13.2% and standard deviation of 23.7%. What is the probability that in any given year, the stock's return will be between -34.2% and +36.9%? Assume the following: the one standard deviation probability range is 0.68; the two standard deviation probability range is 0.95; and the three standard deviation probability range is 0.99. 0.685 O 0.955 O 0.750 0.815 O 0.950
An analyst gathered the following information for a stock and market parameters: stock beta = 0.757; expected return on the Market = 11.65%; expected return on T-bills = 3.02%; current stock Price = $9.92; expected stock price in one year = $8.20; expected dividend payment next year = $2.92. Calculate the required return and expected return for this stock. Please write your answers as percentages (e.g. 1234 should be written as 12.34): A. Required Return: B. Expected Return: % %
Calculate the Beta of a stock that has annual returns of 18%, -10%, 16%, while the market (X-variable) has corresponding annual returns of 20%, -5%, 10% during each of these three years. (Hint: Your calculator should generate an average value of 8% for the stock = Y, if not re-check your data register).
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (5 %) (38 %) 0.2 5 0 0.5 14 21 0.1 23 27 0.1 28 38 Calculate the expected rate of return, , for Stock B ( = 12.60%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 20.20%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Assume the risk-free rate is 2.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places. Stock A: Stock B:
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