The stock of Business Adventures sells for $50 a share.Its likely dividend payout and end-of-year pricedepend on the state of the economy by the end of theyear as follows: Dividend Stock Price Boom $ 3.00 $ 58Normal economy 1.40 52 Recession 0.70 43 Required: aCalculate the expected holding - period return andstandard deviation of the holding - period return. Allthree scenarios are equally likely. (Do not roundintermediate calculations. Round your answers to 2decimal places.) b. Calculate the expected return andstandard deviation of a portfolio invested half inBusiness Adventures and half in Treasury bills. Thereturn on bills is 3%. (Do not round intermediatecalculations. Round your answers to 2 decimal places.)

a. Expected Holding-Period Return and Standard Deviation Expected Holding-Period Return: We…

Answered: The stock of Business Adventures sells…

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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The stock of Business Adventures sells for $65 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Boom Normal economy Recession Expected return Standard deviation Dividend $2.40 1.60 0.85 Required: a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation Stock Price $73 66 57 % % b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 3%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) %
The stock of Business Adventures sells for $30 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Boom Normal economy Recession Dividend $ 2.00 1.40 0.50 Required: a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation Answer is complete and correct. Stock Price $ 40 34 25 14.33 22.60 Expected return Standard deviation b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 5%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % % Answer is complete but not entirely correct. 8.75 11.30 % %
4.StockA sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Probability Stock Price Boom $50 Normal economy 42 Recession 30 50% 30% 20% Dividend $2.00 1.00 0.50 a.Calculate the expected holding-period return and standard deviation of the holding period return. b.Calculate the expected return and standard deviation of a portfolio invested half in this stock and half in Treasury bills. The return on bills is 4%.
Suppose your expectations regarding the stock price are as follows: State of the Market Probability Ending Price HPR (includingdividends) Boom 0.30 $ 140 53.5 % Normal growth 0.28 110 17.5 Recession 0.42 80 −12.0 Use the equations E(r)=Σsp(s)r(s)E(r)=Σsp(s)r(s) and σ2=Σsp(s) [r(s)−E(r)]2σ2=Σsp(s) [r(s)−E(r)]2 to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Boom Normal economy Recession Expected return Standard deviation Dividend $2.00 1.00 0.50 a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stock Price $50 43 34 Expected return Standard deviation % % b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 4%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % %
A share of stock of A-Star Inc. is now selling for $23.50. A financial analyst summarizes the uncertainty about the rate of return on the stock by specifying three possible scenarios: Business Condition End of Year Price Annual Dividend Scenario, s Probability, p(s) High growth Normal growth No growth 0.35 $35 $ 4.40 1 2 0.30 27 4.00 0.35 15 4.00 What are the holding-period returns for a one-year investment in the stock of A-Star Inc. for each of the three scenarios? Calculate the expected HPR and standard deviation of the HPR.
Suppose you observe the following situation: Probability of State 0.25 0.45 0.30 State of Economy Recession Normal Irrational exuberance Stock A Stock B % % Rate of Return if State Occurs Stock B Stock A a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) Expected Return % -0.12 0.09 0.44 -0.10 0.09 0.24 b. Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.75, what is the expected market risk premium? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected market risk premium
Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal growth Recession Probability Ending Price 0.21 $ 140 0.30 110 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 HPR (including dividends) 50.5% 18.0 -12.5 stocks. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Mean Standard deviation Answer is complete but not entirely correct. 13.65 % 20.48 %
Suppose you observe the following situation: Probability of State 0.35 0.40 0.25 State of Economy Recession Normal Irrational exuberance Stock A Stock B Expected Return Rate of Return if State Occurs Stock B % Stock A a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) -0.11 0.10 0.45 -0.09 0.10 0.25 b. Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.65, what is the expected market risk premium? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected market risk premium
A share of stock A is selling at K23.50. A summary of the uncertainty about next year’s holding period return with three possible scenarios: Business Conditions Scenario,s Probability, p End of Year Price High Growth 1 0.35 K35 Normal Growth 2 0.30 K27 No growth 3 0.35 K15 Annual dividends are K4.40, K4 and K4 under the different business conditions High, Normal and No growth, respectively. Required: (i). Calculate the annual holding period returns for each of the three scenarios and the expected HPR and the standard deviation of the HPR. (ii). A financial analyst forecasts the return on the LuSE All share index portfolio over the coming year will be 10 %. The one year T-bill rate is 5 %recent returns of the Index suggest a standard deviation of returns to be 18 %. (iii) What does this information suggest about the degree of risk aversion of the average investor assuming the average portfolio resembles the…
Suppose your expectations regarding the stock price are as follows: HPR (including dividends) State of the Market Boom Normal growth Recession Probability Ending Price 0.35 0.30 0.35 Mean Standard deviation 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 S S on stocks. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. do do $ 140 110 80 % 44.5% 14.0 -16.5 %
3. The stock of Business Adventures sells for $100 per share. Its likely dividend payout and end-of year price depend on the state of the economy by the end of the year as follows: Boom Normal economy Recession Dividend $2.00 $1.00 $0.00 a. Calculate the expected holding period return and standard deviation of the holding-period return. Probability of Scenario 0.5 0.25 0.25 b. Stock Price $150 $115 $84 Calculate the expected return and standard deviation of a complete portfolio invested 60% in Business Adventures and 40% in Treasury bills. The return on the T-bill is 3%.

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