Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Question
Chapter 2, Problem 5P
Summary Introduction
To compute: The expected return and standard deviation of the stock.
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(a) A stock’s returns have the following distribution:
Calculate the stock’s expected return, standard deviation, and the coefficient of variation.
Using the data in the following table,, estimate the:
a. Average return and volatility for each stock.
b. Covariance between the stocks.
c. Correlation between these two stocks.
Calculated the expected return of each stock
Chapter 2 Solutions
Intermediate Financial Management
Ch. 2 - Prob. 2QCh. 2 - Security A has an expected return of 7%, a...Ch. 2 - Prob. 4QCh. 2 - Prob. 5QCh. 2 - Your investment club has only two stocks in its...Ch. 2 - AA Corporations stock has a beta of 0.8. The...Ch. 2 - Suppose that the risk-free rate is 5% and that the...Ch. 2 - Prob. 5PCh. 2 - The market and Stock J have the following...Ch. 2 - Prob. 7P
Ch. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - Prob. 11PCh. 2 - Stock R has a beta of 1.5, Stock S has a beta of...Ch. 2 - Prob. 1MCCh. 2 - Prob. 2MCCh. 2 - Prob. 3MCCh. 2 - What is the stand-alone risk? Use the scenario...Ch. 2 - Prob. 5MCCh. 2 - Prob. 6MCCh. 2 - Prob. 7MCCh. 2 - Prob. 8MCCh. 2 - Prob. 9MCCh. 2 - Prob. 10MCCh. 2 - Prob. 11MCCh. 2 - Prob. 12MCCh. 2 - Prob. 13MCCh. 2 - Prob. 14MCCh. 2 - Prob. 15MCCh. 2 - Prob. 16MCCh. 2 - Prob. 17MCCh. 2 - Prob. 18MC
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Similar questions
- What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.arrow_forward(c) Consider information given in the table below and answers the question asked thereafter: i. Calculate expected return on each stock? On the basis of this measure, which stock you will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of this measure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of this measure, which stock you will choose?iv. Calculate covariance and coefficient of correlation between the returns of the stocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfolio comprising of $35,000 invested in stock A and remaining amount in stock B. Calculate risk and return of your portfolio. (d) Firm A reports a Profit Margin of 6.5% and a Total Asset Turnover Ratio of 3.25. Their total asset level is $8,500,000. Assume there are 700,000 shares outstanding and the PE ratio is 11. Also, assume the Return on Equity is 16%. Based on this, calculate…arrow_forward(b) the standard deviation of the returns of the stocks A and Barrow_forward
- A price-weighted index such as the DJIA is a geometric mean of current stock prices. a. True b. Falsearrow_forwardThe metric that is used to show the extent to which a given stock’s return move up and down with the stock market? a. Correlation b. Beta c. Standard deviation d. Expected returnarrow_forward1) what is the expected return rate for stock A 2) what is the expected return rate for stock B 3) what is the standard deviation of returns for stock A 4) what is the standard deviation of returns for stock B.arrow_forward
- The standard deviation of a stock’s return is a measure of its? Multiple Choice systematic risk correlation expected future return total riskarrow_forwardSuppose you have the following expectations about the market condition and the returns on Stocks X and Y. a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?arrow_forwardConsider the following information: Probability of State of Economy Rate of Return if State Occurs State of Economy Recession Normal Stock A Stock B 10 -19 06 .09 .60 .16 Boom 30 15 35 Calculate the expected return for Stock A. Expected retum 10.50% 10.50% 10.02% 11.03% 9.95% Calculate the expected return for Stock B. Expected retumarrow_forward
- What is the standard deviation for the stock?arrow_forwardCalculate the variance and standard deviation of each stockarrow_forwardThe Black-Scholes OPM is dependent on which five parameters? Select one: a. Stock price, exercise price, risk free rate, beta, and time to maturity b. Stock price, risk free rate, beta, time to maturity, and variance c. Stock price, exercise price, risk free rate, standard deviation and time to maturity d. Stock price, risk free rate, probability, standard deviation and exercise pricearrow_forward
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