You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in eachstock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (c) below. Probability0.10.20.40.3a. Compute the expected return for stock X and for stock Y.The expected return for stock X is(Type an integer or a decimal. Do not round.)Economic ConditionRecessionSlow growthModerate growthFast growthReturnsStock X Stock Y- 403080150- 11040140210

The expected rate of return is the average amount of interest that investing in stock provides while…

You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (c) below. Probability 0.1 a. Compute the expected return for stock X and for stock Y. The expected return for stock X is. (Type an integer or a decimal. Do not round.) *** 0.2 0.4 0.3 Returns Economic Condition Stock X Stock Y Recession Slow growth Moderate growth Fast growth -40 30 80 150 - 110 40 140 210

You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (c) below. Probability 0.1 a. Compute the expected return for stock X and for stock Y. The expected return for stock X is. (Type an integer or a decimal. Do not round.) *** 0.2 0.4 0.3 Returns Economic Condition Stock X Stock Y Recession Slow growth Moderate growth Fast growth -40 30 80 150 - 110 40 140 210

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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(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 0.20 0.60 0.20 Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.) Common Stock B Return 13% 14% 18% Return - 6% 7% 15% 21% a. Given the information in the table, the expected rate of return for stock A is 14.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.)
You have estimated the following probability distributions of expected future returns for Stocks X and Y: Stock X Stock Y Probability Return Probability Return 0.1 -12 % 0.2 4 % 0.1 11 0.2 7 0.3 14 0.3 11 0.3 30 0.2 17 0.2 40 0.1 30 What is the expected rate of return for Stock X? Stock Y? Round your answers to one decimal place.Stock X: % Stock Y: % What is the standard deviation of expected returns for Stock X? For Stock Y? Round your answers to two decimal places.Stock X: % Stock Y: % Which stock would you consider to be riskier? is riskier because it has a standard deviation of returns.
The following table represents the rate of returns of two stocks in different economic conditions along with their probabilities (the data are also uploaded on moodle) RATES OF RETURN ON STOCKS EXPECTED ECONOMIC PROBABILITY STOCK A STOCK B CONDITIONS RECESSION 0.55 -0.04 -0.02 STABLE 0.35 0.25 0.30 EXPANDING 0.10 0.15 0.20 Answer the following by using mathematical calculations: a) Calculate the expected rate of return for each stock respectively. Explain what the expected value implies. b) Calculate the standard deviation for each stock respectively. Explain what the standard deviation implies. c) If you were an investor in which stock you were going to invest? Justify your answer. d) Calculate the covariance between Stock A and stock B. Discuss. e) Calculate the expected return and the standard deviation of the portfolio consisting 40% in stock A and 60% in stock B. f) Discuss the risk and return associated with investing i All of your funds in stock A ii. All of your funds in stock…
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?
(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 0.20 0.60 0.20 Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.) ew an example Get more help. T 3 a. Given the information in the table, the expected rate of retum for stock A is 15.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.) E D 80 73 Return. 12% 16% 18% U с $ 4 R F 288 F4 V Common Stock B % 5 T FS G 6 Return -7% 7% 13% 21% B MacBook Air 2 F& Y H & 7 N 44 F? U J ** 8 M | MOSISO ( 9 K DD O . Clear all : ; y 4 FIX { option [ + = ? 1 Check answer . FV2 } ◄ 1 delete 1 return shift
(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.)
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation A 5 % 20 % B 8 % 80 % Correlation = –1 a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be substituted for the risk-free asset?) (Round your answer to 2 decimal places.) b. Could the equilibrium rƒ be greater than 5.60%?multiple choice Yes No
b) Suppose that you observe the following information in Table 2 for stocks A and B: Table 2 Expected Return (%) 11% Stock Beta A 0.8 В 14% 1.5 The risk-free rate of return is 6% and the expected rate of return on the market index is 12%. Using the Single-Index Model, calculate the alpha of both stocks. Show your calculations. Explain what the alpha of the single-factor model represents and interpret your results.
The stock market can have three potential returns with the following probabilities. Note "otherwise" is whatever probability it takes for all three probabilities to sum to one. So, if the first two probabilities are each .30, then "otherwise" represents a probability of .40. Probability Return -0.04 0.24 0.38 otherwise 0.00 0.18 What is the stock market's standard deviation? Enter your answer in decimal form, and show 4 decimal places.
Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. a. Find the beta of each stock. (Round your answers to 2 decimal places.) Stock A Stock D b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. (Enter your answers as a whole percent.) Market Portfolio % Stock A % Stock D % c. If the T-bill rate is 5%, what does the CAPM say about the fair expected rate of return on the two stocks? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Stock A Stock D d. Which stock seems to be a better buy on the basis of your answers to (a) through (c)?
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…
You are given the following information: State of Economy Bear Normal Bull Return on Stock A a. Stock A Stock B b. Stock A Stock B 114 103 085 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.) Return on Stock B C.…

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