The standard deviation of annual returns for Stock #1 is 53% and for Stock #2 is 47%. The correlation of Stock #1's returns to Stock #2's returns is +1. If you buy $47 worth of Stock #1, how much worth of Stock #2 must you trade in order to created a hedged portfolio of the two stocks? If you want buy Stock #2, make it a positive number and if you want to short-sell Stock #2, type a negative number. Round to the nearest dollar (but, as always, don't type the dollar sign).
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- 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 Return 0.25 13% 0.25 −7% 0.50 14% 0.25 7% 0.25 18% 0.25 16% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here %. (Round to two decimal places.) Part 2 The standard deviation of stock A is enter your response here %. (Round to two decimal places.) Part 3 b. The expected rate of return for stock B is enter your response here %. (Round to two decimal places.) Part 4 The standard deviation for stock B is enter…(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 retum? Common Stock A Probability 0.25 0,50 0:25 Common Stock B Return 10% 17% 10% Probability 0.10 0:40 0:40 010 (Click on the soon in order to copy its contents into a spreadsheet) Return -6% 8% 15% 20% COD a. Given the information in the table the expected rate of return for stock A is 15.5% (Round to two decimal places) The standard deviation of stock A is 4 36% (Round to two decimal places)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 Return 0.35 13% 0.25 −7% 0.30 17% 0.25 8% 0.35 21% 0.25 15% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here%. (Round to two decimal places.)
- The rate of return on the market stock index is 13 percent. The rate of return on a risk-freebank account is 1%. The B (beta) of stock XYZ is 1.5. Use the data to answer the questionsbelow.a. What is the market risk premium? Show your work.b. What is the cost of equity for XYZ? Show your work.c. What is the stock XYZ risk premium? Show your work.d. Draw the graph of the Security Market Line and show the stock of XYZ on the graph.The end-of-year dividend on stock ABC is expected to be $0.8. The growth rate of dividend isexpected to be 5 percent for ever. The current price of the ABC stock is $10. Use the data toanswer the questions below.e. What is the cost of equity for stock ABC? Show your work.f. Suppose stock KLM has the same end-of-year dividend, dividend growth rate andprice as stock ABC, but the risk of KLM stock is much greater than of the ABC stock.What is your estimate of the cost of equity of stock KLM using the method at part e?Do you agree with the valuation of the cost of…Assume you have invested in two other stocks: Stock A has a beta of 1.20 and Stock B has a beta of 0.8. Rf= 2% and Rm = 12%. Using CAPM, what are the expected returns for each stock? Return of stock = Risk free rate + beta ( market rate of return - risk free rate of return) Return of Stock A = 2% + 1.20 (12% - 2%) = 2.12% Return of Stock B = 2% + 0.80 (12% - 2%) = 2.08% What is the expected return of an equally weighted portfolio of these two stocks? Weight of stock A = 0.50 Weight of Stock B = 0.50 Expected return = (Return of Stock A * weight of Stock A) + (Return of Stock B * weight of stock B) = (2.12 * 0.50) + (2.08*0.50) = 1.06 + 1.04 = 3% What is the beta of an equally weighted portfolio of these two stocks? Beta of portfolio = (Beta of Stock A * weight of stock A) + (Beta of Stock B * weight of Stock B) = (1.20*0.50) + (0.80*0.50) = 0.60 + 0.40 = 1 Beta of portfolio = 1 (iv) Sketch the SML to represent the…You are trying to decide whether to invest in one or both of two different stocks. The marketrisk premium and risk-free rate are 6 percent and 4 percent respectively.Beta Expected Return(%)Stock 1 beta 0.8 % expected return7.0Stock 2 beta 1.2 %expected return 9.5Use your knowledge of the CAPM and the SML which and determinewhether you should invest in either, one, or both of these stocks. Provide all workings
- Assume you have invested in two other stocks: Stock A has a beta of 1.20 and Stock B has a beta of 0.8. Rf= 2% and Rm = 12%. (i) Using CAPM, what are the expected returns for each stock? Return of stock = Risk free rate + beta ( market rate of return - risk free rate of return) Return of Stock A = 2% + 1.20 (12% - 2%) = 2.12% Return of Stock B = 2% + 0.80 (12% - 2%) = 2.08% (ii) What is the expected return of an equally weighted portfolio of these two stocks? Weight of stock A = 0.50 Weight of Stock B = 0.50 Expected return = (Return of Stock A * weight of Stock A) + (Return of Stock B * weight of stock B) = (2.12 * 0.50) + (2.08*0.50) = 1.06 + 1.04 = 3% (iii) What is the beta of an equally weighted portfolio of these two stocks? Beta of portfolio = (Beta of Stock A * weight of stock A) + (Beta of Stock B * weight of Stock B) = (1.20*0.50) + (0.80*0.50) = 0.60 + 0.40 = 1 Beta of portfolio = 1 (iv) Sketchthe SML to…You are using the CAPM to calculate a fair return for Stardust common stock. The shares have a volatility of 36.00%, while the market has a volatility of 19.00%. The correlation between the two sets of returns is 0.30. The risk free rate is 1.00%, while the expected return on the market is 3.90%. What is the fair return for Stardust common stock?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 _____%
- (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 0.25 0,50 0.25 Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a apreadsheet) Common Stock B Return 10% 17% 18% Return -4% 7% 13% 20% G a. Given the information in the table, the expected rate of return for stock A is 15.5% (Round to two decimal places) The standard deviation of stock A is (Round to two decimal places.)An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?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?