. Suppose your expectations regarding the stock price are as follows:Selling price = 100 T-bills = 6% dividend = 10 per 100 valueState of marketProbabilityEnding priceВoom0.3140Normal growth0.4110Recession800.3Calculate the HPR for each scenario, the expected rate of return, and the risk premiumon your investment, and standard deviation of excess return.

Expected rate of return is the profit or loss on the investor that is assumed to be anticipated by…

- Suppose your expectations regarding the stock price are as follows: Selling price = 100 T-bills = 6% dividend = 10 per 100 value State of market Probability Ending price Boom 0.3 140 Normal growth 0.4 110 Recession 0.3 80 Calculate the HPR for each scenario, the expected rate of return, and the risk premium on your investment, and standard deviation of excess return.

- Suppose your expectations regarding the stock price are as follows: Selling price = 100 T-bills = 6% dividend = 10 per 100 value State of market Probability Ending price Boom 0.3 140 Normal growth 0.4 110 Recession 0.3 80 Calculate the HPR for each scenario, the expected rate of return, and the risk premium on your investment, and standard deviation of excess return.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

See similar textbooks

Similar questions

You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
Now assume that the stock is currently selling at $30.29. What is its expected rate of return?
Stock A has a beta of 0.2, and investors expect it to return 3%. Stock B has a beta of 1.8, and investors expect it to return 11%. Use the CAPM to calculate the market risk premium and the expected rate of return on the market. (Enter your answers as a whole percent.) Market risk Premium ______% Expected Market Rate of Return _____%
Suppose risk-free rate of return = 2%, market return = 7%, and Stock B’s return = 11%. a. Calculate Stock B’s beta. b. If Stock B’s beta were 0.80, what would be its new rate of return?
b) You are given the following information about Stock X and the market: The annual effective risk-frec rate is 5%. The expected return and volatility for Stock X and the market are shown in the table below: Expected Return Volatility Stock X 5% 40% Market 8% 25% The correlation between the returns of stock X and the market is -0.25. Assume the Capital Asset Pricing Model holds. Calculate the required return for Stock X and determine if the investor should invest in Stock X.
Consider an event study of the following stock. Realised return Market return t = 0 (event day) 0.1 0.1 t =1 0.06 0.04 t = 2 0.03 0.02 t = 3 0.015 0.01 Suppose that the estimated market model is . What is the CAR (cumulative abnormal returns) for t = 3?
(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 Common Stock B Probability Return Probability Return0.20 10% 0.15 -4% 0.60 16% 0.35 7%0.20 21% 0.35 13% 0.15 20% a) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, what is the expected rate of return for stock A? What is the standard deviation? b. Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, what is the expected rate of return for stock B? What is the standard deviation? c. Based on the risk (as measured by the standard deviation) and return of each stock, which…
Given the information below, calculate the reward-to-risk ratio implied by the CAPM pricing model. Stock Beta Expected Return A 3.4% B 1.50 15.25% 2.00 19.20% D 2.25 E ? 10%
a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio returm and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the Page 7 of 33 expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a 45 corelation with the market portfolio and a standard deviation of 55 percent? C. Suppose the risk-free rate is 4.2 percent and the market portfolıo has an expected return of 10.9 mercent Tibemadkat normfeliobasiabiamance…
Consider the following probability distribution for stocks C and D: State Probability Return on Stock C Return on Stock D 1 0.30 7 % − 9 % 2 0.50 11 % 14 % 3 0.20 − 16 % 26 % If you invest 25% of your money in C and 75% in D, what would be your portfolio's expected rate of return and standard deviation?
Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092
You expect the risk-free rate to be 4 percent and the market return to be 10 percent. You also have the following information about three stocks. Stock Beta Current Expected Expected Price Price Dividend U 1.5 $10 $11.50 $1.00 N 1.1 $27 $30 $0.00 Ο 0.8 $35 $36 $1.50 (Question 1 of 2) Based on the required rate of return estimated with the CAPM and your expected returns based on prices and dividends, select an investment strategy for each stock: Stock U Stock N [Choose ] [Choose ] Stock O [Choose ]