The probability distributions of expected returns for stocks XMX and BMX are as follows: Probability Stock XMX (%) Stock BMX (%) 0.10 (15) (25) 0.20 0.40 17 0.20 10 30 0.10 25 60 а. Calculate the expected return for stock XMX and BMX b. Calculate the variances, standard deviation and Coefficient of variation for stock XMX and BMX. C. Which is the riskier of the two stocks? Why?

The probability distributions of expected returns for stocks XMX and BMX are as follows: Probability Stock XMX (%) Stock BMX (%) 0.10 (15) (25) 0.20 0.40 17 0.20 10 30 0.10 25 60 а. Calculate the expected return for stock XMX and BMX b. Calculate the variances, standard deviation and Coefficient of variation for stock XMX and BMX. C. Which is the riskier of the two stocks? Why?

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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QUESTION 1 Under which of the following scenarios, the minimum variance portfolio that contains two stocks has the smallest standard deviation? OA. The correlation between the two stock returns is -1 OB. The correlation between the two stock returns is -0.2 OC. The correlation between the two stock returns is 0.2 OD. The correlation between the two stock returns is 0.5
A B COV A Return SD 0.05 0.25 0.17 0.18 0.008 4 0.04 Rf this is a minimum variance question what is the weight of stock A what is the weight of stock b what is the return of the portfolio what is the risk of the portfolio
The market and Stock J have the following probability distributions: Probability rM rJ 0.3 15% 20% 0.4 9 5 0.3 18 12 Calculate the expected rates of return for the market and Stock J. Calculate the standard deviations for the market and Stock J. Calculate the coefficients of variation for the market and Stock J.
The probability distribution of returns for the two stocks X and Y are as follows: Probability 0.1 0.3 0.05 0.25 0.15 0.15 For each of the two stocks, calculate: a. The expected return. b. Variance of returns c. Volatility of returns. Stock X 0.05 -0.1 0.08 -0.08 0.20 0.12 Return Stock Y 0.13 0,04 -0.12 0.21 0.1 -0.05
The market and Stock J have the following probability distributions: ProbabIlity rM rJ 0.3 15% 20% 0.4 9 5 0.3 18 12 A. Calculate the expected rates of return for the market and Stock J. B. Calculate the standard deviations for the market and Stock J
1. Using the following returns, calculate the average returns, the variance, standard deviations, and coefficient of variation for X and Y. Which stock is the least risky? Yr 1 2 3 Rx 12.20 9.65 0.00 6.50 Ry 4 8.00 -2.00 12.50 9.57
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% Calculate covariance and coefficient of correlation between the returns of thestocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfoliocomprising of $45,000 invested in stock A and remaining amount in stock B.Calculate risk and return of your portfolio.
2. Suppose that the market model for stocks A and B is estimated with the following results: RA = 1% +0.9*RM+EA RB = -2% + 1.1*RM+EB The standard deviation of the markets returns is 20% and firm specific risk (standard deviation) equals 30% for A and 10% for B. a. Compute the risk (standard deviation) of each stock and the covariance between them. Suppose we form an equally weighted portfolio of stocks A and B. What will be the nonsystematic standard deviation of that portfolio? b.
Expected Returns: Discrete Distribution The market and Stock J have the following probability distributions: Probability rM rJ 0.3 15% 20% 0.4 9 7 0.3 18 10 Calculate the expected rates of return for the market and Stock J. Round your answers to one decimal place. Expected rate of return (Market): % Expected rate of return (Stock J): % Calculate the standard deviations for the market and Stock J. Do not round intermediate calculations. Round your answers to two decimal places. Standard deviation (Market): % Standard deviation (Stock J): %
16. There are two stocks with the following return and risk values. The correlation between A and B is 0.2. al Expected Standard Return(%) Deviation(%) Stock A 5.5 10 B 7.5 17 What is the standard deviation of the minimum variance portfolio(MVP) that is a) formed by combining assets A and B? (That is, what are the weights of stock A and stock B in MVP?) b) What is the expected return of the portfolio P that is formed by investing 50% on the MVP and 50% on a stock that has an expected return of 10%? c) Assume that the only assets available to investors are the risk free asset and the portfolio P. The risk free rate is 2%. Assume also that there is $100 to be invested. What is the expected return of a NEW portfolio that is formed by combining risk free rate with a weight of -0.5 and portfolio P with a weight of 1.5? What does a negative weight mean? Explain with one sentence
Consider the following probability distribution for stocks A and B: Table 4 Probability Distribution for Stocks A and B State Probability Return on Stock A Return on Stock B 1 0.1 10% 8% 2 0.2 13% 7% 3 0.2 12% 6% 4 0.3 14% 9% 5 0.2 15% 8% The variances of Stocks A and B are _____ and _____, respectively. Group of answer choices .015%; .019% .022%; .012% .032%; .02% .015%; .011% .014%; .021%
Calculate the coefficients of variation for the following stocks: Stock Expected return Standard deviation of return 1 0.065 0.25 2 0.06 0.17 3 0.14 0.24 What is the coefficient of variation for stock 1? What is the coefficient of variation for stock 2? What is the coefficient of variation for stock 3? f you want to get the best risk-to-reward trade-off, which stock should you buy? Stock 2 Stock 3 Stock 1

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