Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal growth Recession Probability Ending Price 0.26 $ 140 0.25 110 0.49 80 Use the equations E (r) = Ep (s) r(s) and o² = Ep (s) [r(s) — E(r)]² to compute the mean and standard deviation of the HPR on - S S Mean Standard deviation HPR (including dividends) 55.0% 21.0 -16.0 stocks. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. % %arrow_forwardBaghibenarrow_forwardWe know the following expected returns for stocks A and B, given the different states of the economy: State(s) Probability E(rA,s) E(rB,s) Recession 0.1-0.06 0.04 Normal 0.5 0.09 0.07 Expansion 0.4 0.17 0.11 What is the standard deviation of returns for stock B?arrow_forward
- 10:06 9. Given: EXR) .10 E(R) .15 0₁.03 0₂.05 Calculate the expected returns and expected standard deviations of a two-stock portfolio in which Stock I has a weight of 60 percent under the following conditions: a. 1.00 b.2-0.75 c. P₁2=0.25 d.n=0.00 c. P₁2=-0.25 f.r=-0.75 872-1.00 a. w-1.00 b. w₁=0.75 c. w=0.50 d. w₁ -0.25 c. w;0.05 Expert Q&A Calculate the expected returns and expected standard deviations of a two-stock portfolio having a correlation coefficient of 0.70 under the following conditions: 10. Given: E(R₁) 0.12 E(R₂) = 0.16 .ll? G₁-0.04 0₂-0.06 Plot the results on a return-risk graph. Without calculations, draw what a curve with varying weights would look like if the correlation coefficient had been 0.00, or if it had been -0.70. Donearrow_forwardData: S0 = 102; X = 115; 1 + r = 1.1. The two possibilities for ST are 146 and 84. Required: The range of S is 62 while that of P is 31 across the two states. What is the hedge ratio of the put? Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio? What is the present value of the portfolio? Given that the stock currently is selling at 102, calculate the put value.arrow_forwardE(FAssume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (Rs) on stock B. The risk-free rate (R;) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (BA) to beta of B (BB). a oarrow_forward
- What is the standard deviation of Stock B returns given the information below about its returns across future states of nature? Enter return in decimal form, rounded to 4th digit, as in "0.1234"arrow_forwardK -61 =1 2 N (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? Probability 0.25 0.50 0.25 Common Stock A Probability 0.25 0.25 0.25 0.25 (Click on the icon in order to copy its contents into a spreadsheet.) @ 2 a. Given the information in the table, the expected rate of return for stock A is 16.25 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.) b. The expected rate of return for stock B is%. (Round to two decimal places.) The standard deviation for stock B is%. (Round to two decimal places.) c. Based on the risk (as measured by the standard deviation) and return of each stock, which investment is better? (Select the best choice below.) 30² F2 W OA. Stock A is better because it has a higher expected rate of return with less risk B. Stock B is…arrow_forwardRefer to the graph below, what is the beta of portfolio X under CAPM? E(r) A 0.14 0.10 0.06 N Beta of portfolio X = place) M X o(r) (to the nearest 1 decimalarrow_forward
- v.2arrow_forwardSuppose securities A, B, and C have the following expected return and risk. Stock Expected return Risk A 8% 6% B 7% 9% C 13% 9% What is the coefficient of variation for stock A?arrow_forwardUse the following information: Stock A B Good state 10% 14% Bad state 2% -2% Assume there is 60% probability that the good state occurs and 40% chance the bad state occurs. What is the standard deviation of stock A? (Please use 5 decimal places, this should be written in percentage, so an answer of 23.143% should be written as .23143)arrow_forward
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