ESSENTIALS CORPORATE FINANCE + CNCT A.
9th Edition
ISBN: 9781259968723
Author: Ross
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 18QP
Summary Introduction
To determine: The range of returns that would occur 68 percent of the time for the large-company stock.
Summary Introduction
To determine: The range of returns that would occur 95 percent of the time of large-company stocks.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
XYQ Co. believes the following probability distribution exists for its stock. What is thecoefficient of variation on the company's stock? (Please state your answer in 2 decimal digitpoints)Economy Probability Return (%)Boom 0.45 25Normal 0.50 15Recession 0.05 5
Remember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during all possible
circumstances. To compute an asset's expected return under a range of possible circumstances (or states of nature), multiply the anticipated return
expected to result during each state of nature by its probability of occurrence.
Consider the following case:
Aaron owns a two-stock portfolio that invests in Blue Liama Mining Company (BLM) and Hungry Whale Energy (HWE). Three-quarters of Aaron's
portfolio value consists of BLM's shares, and the balance consists of HWE's shares.
Each stock's expected return for the next year will depend on forecasted market conditions. The expected returns from the stocks in different market
conditions are detailed in the following table:
Market Condition Probability of Occurrence
20%
35%
45%
Strong
Normal
Weak
Blue Llama Mining Hungry Whale Energy,
10%
14%
6%
-8%
8%
-10%
Calculate expected returns for the…
What are the arithmetic and geometric (Answer in that order.) average returns for a stock with
annual returns of 9.4 percent, 8.2 percent, -8.3 percent, 4.1 percent, and 9.5 percent?
Chapter 10 Solutions
ESSENTIALS CORPORATE FINANCE + CNCT A.
Ch. 10.1 - Prob. 10.1ACQCh. 10.1 - Why are unrealized capital gains or losses...Ch. 10.1 - What is the difference between a dollar return and...Ch. 10.2 - Prob. 10.2ACQCh. 10.2 - Prob. 10.2BCQCh. 10.2 - Prob. 10.2CCQCh. 10.2 - Prob. 10.2DCQCh. 10.2 - Prob. 10.2ECQCh. 10.2 - Prob. 10.2FCQCh. 10.3 - What do we mean by excess return and risk premium?
Ch. 10.3 - Prob. 10.3BCQCh. 10.3 - Prob. 10.3CCQCh. 10.3 - What is the first lesson from capital market...Ch. 10.4 - In words, how do we calculate a variance? A...Ch. 10.4 - Prob. 10.4BCQCh. 10.4 - Prob. 10.4CCQCh. 10.4 - What is the second lesson from capital market...Ch. 10.5 - Prob. 10.5ACQCh. 10.5 - Prob. 10.5BCQCh. 10.6 - What is an efficient market?Ch. 10.6 - Prob. 10.6BCQCh. 10 - Section 10.1Say you buy a share of stock for 50....Ch. 10 - Prob. 10.3CCh. 10 - Prob. 10.4CCh. 10 - Prob. 10.5CCh. 10 - Prob. 10.6CCh. 10 - Prob. 1CTCRCh. 10 - Prob. 2CTCRCh. 10 - Risk and Return. We have seen that over long...Ch. 10 - Market Efficiency Implications. Explain why a...Ch. 10 - Prob. 5CTCRCh. 10 - Prob. 6CTCRCh. 10 - Prob. 7CTCRCh. 10 - Prob. 8CTCRCh. 10 - Efficient Markets Hypothesis. There are several...Ch. 10 - Prob. 10CTCRCh. 10 - Prob. 1QPCh. 10 - Prob. 2QPCh. 10 - Prob. 3QPCh. 10 - Prob. 4QPCh. 10 - Nominal versus Real Returns. What was the...Ch. 10 - Bond Returns. What is the historical real return...Ch. 10 - Prob. 7QPCh. 10 - Prob. 8QPCh. 10 - Prob. 9QPCh. 10 - Calculating Real Returns and Risk Premiums. For...Ch. 10 - Prob. 11QPCh. 10 - Prob. 12QPCh. 10 - Calculating Returns. You purchased a zero-coupon...Ch. 10 - Prob. 14QPCh. 10 - Prob. 15QPCh. 10 - Calculating Real Returns. Refer to Table 10.1....Ch. 10 - Return Distributions. Refer back to Figure 10.10....Ch. 10 - Prob. 18QPCh. 10 - Prob. 19QPCh. 10 - Arithmetic and Geometric Returns. A stock has had...Ch. 10 - Prob. 21QPCh. 10 - Prob. 22QPCh. 10 - Prob. 23QPCh. 10 - Prob. 24QPCh. 10 - Prob. 25QPCh. 10 - Prob. 26QPCh. 10 - Prob. 27QPCh. 10 - Prob. 28QPCh. 10 - Prob. 1CCCh. 10 - Prob. 2CCCh. 10 - Prob. 3CCCh. 10 - Prob. 4CCCh. 10 - Prob. 5CC
Knowledge Booster
Similar questions
- Now assume that the stock is currently selling at $30.29. What is its expected rate of return?arrow_forwardEach stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield (which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A weighted average of those returns, using each stock's total market value, is then calculated, and that average return is often used as an indicator of the "return on the market."arrow_forwardWhat is the standard deviation of the returns on a stock given the following information? State of Economy Probability of State of Economy Rate of Return if State Occurs Boom .08 .171 Normal .70 .076 Recession .22 .017arrow_forward
- Characteristic Line and Security Market Line You are given the following set of data: Historical Rates of Return Year NYSE Stock X 1 -26.5% -11.0% 2 37.2 25.0 3 23.8 13.5 4 -7.2 2.0 5 6.6 11.1 20.5 18.5 7 30.6 19.0 a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Do not round intermediate calculations. Round your answer to two decimal places. b. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for both Stock X and the NYSE. Do not round intermediate calculations. Round your answers to two decimal places. Stock X NYSE Average return, FAvg % % Standard deviation, ơ %arrow_forwardWhat is the expected mean and standard deviation if stock returns followed this historical distribution: +10% - 5% +20% + 15%. Show your work.arrow_forwardYou were analyzing a stock and came up with the following probability distribution of the stock returns. What is the coefficient of variation on the company's stock?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. State of the Economy Probability of State Occurring Stock's Expected Return Boom 25.00% 24.15% Normal 46.00% 17.40% Recession 29.00% 6.20% Group of answer choicesarrow_forward
- You were analyzing a stock and came up with the following probability distribution of the stock returns. What is the coefficient of variation on the company's stock?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. State of the Economy Probability of State Occurring Stock's Expected Return Boom 20.00% 21.00% Normal 46.00% 14.60% Recession 34.00% 8.45%arrow_forwardYou are analyzing a stock that has the following returns given the various states of economy. State of Economy Probability Return Recession 0.12 -7.20 Normal 0.68 6.80 Boom 0.2 15.40 What is the expected return on this stock?arrow_forwardSuppose you have predicted the following returns for stocks C (Your Company) and T (Your Competitor) in three possible states of nature. What are the expected returns? State Probability C T Boom 0.2 0.13 0.30 Normal 0.5 0.12 0.17 Recession 0.3 0.04 0.02arrow_forward
- Assume that the risk-free rate is 7.5% and the market risk premium is 3%. What is the required return for the overall stock market? Round your answer to one decimal place. _________ % What is the required rate of return on a stock with a beta of 1.8? Round your answer to one decimal place. _____________ %arrow_forwardIf you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: High price Low price EPS Year 1 $ 62.18 40.30 2.35 a. High target price b. Low target price Year 2 $ 67.29 43.18 2.58 Year 3 $74.18 39.27 2.73 Year 4 $ 78.27 46.21 2.89 Earnings are expected to grow at 9 percent over the next year. a. What is the high target stock price in one year? Note: Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the low target stock price in one year? Note: Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.arrow_forwardYou were analyzing a stock and came up with the following probability distribution of the stock returns. What is the coefficient of variation on the company's stock?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. State of the Economy Probability of State Occurring Stock's Expected Return Boom 30.00% 20.60% Normal 51.00% 15.65% Recession 19.00% 7.95% A. 0.2753 B. 0.1927 C. 0.3166 D. 0.3304 E. 0.2478arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning