Following are the probability distribution of returns of portfolio of Stock A and Stock B in equal proportion of weight in each state of economy. You are required to calculate Expected Return and Risk for individual Stocks? State of Economy 1 2 3 4 5 Probability 0.2 0.2 0.2 0.2 0.2 Return on Stock A (%) 15 (5) 5 35 25 Return on Stock B (%) (5) 15 25 5 35

Following are the probability distribution of returns of portfolio of Stock A and Stock B in equal proportion of weight in each state of economy. You are required to calculate Expected Return and Risk for individual Stocks? State of Economy 1 2 3 4 5 Probability 0.2 0.2 0.2 0.2 0.2 Return on Stock A (%) 15 (5) 5 35 25 Return on Stock B (%) (5) 15 25 5 35

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

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Qn4: Assume a two-stock portfolio created with $50,000 is invested in both HT and Collections. The expected returns are given below: Calculate the portfolio's return for each state of economy and fill them in the last column, under "Portfolio" (Hint: The portfolio's expected return is a weighted average of the returns of the portfolio's component assets). Calculate the portfolio's expected return (Hint: You have to incorporate the probability distribution of each state of economy). Calculate the portfolio's standard deviation. Economy Recession Below average Average Above average Boom Prob. HT 0.1 -27.0% 0.2 -7.0% 0.4 15.0% 0.2 30.0% 0.1 45.0% Coll 27.0% 13.0% 0.0% -11.0% -21.0% Portfolio
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?
What is the beta of the following two stock portfolio? Security Beta of the security Amount invested A 1.35 $ 20,000 B 0.50 $ 30,000 a. 1.075 b. 1.00 c. 1.19 d. 0.84
You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B с Investment Beta $202,000 303,000 505,000 Beta of the portfolio 1.59 Expected rate of return 0.59 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 15 percent and that the risk-free rate is 7 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) 1.16 %
Suppose you have portfolio of four stocks Stock A, B, C and D, Total investment in these stocks is equal to 2019331015 $, Beta of these stocks is 1.5, (0.5), 1.25, and 0.75 and proportion invested is 22%, 20%, 30%, and remaining in D. If the Risk free rate is 6% and market rate of return is 15%. Calculate a) Investment in each stock. b) Market premium c) Required Rate of return for each stock. d) Required rate of return of Portfolio. e) If expected rate of return of stock A is 10%, what do you think if it is overvalued or undervalued.
Based on the following information Calculate State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.25 0.05 -0.17 Normal 0.45 0.08 0.12 Boom 0.30 0.13 0.29 a) The expected return of Stock A b) The expected return of Stock B c) The expected return of Portfolio where you invest $15,000 in Stock A and $25,000 in Stock B d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.2. If you invest $15,000 in Stock A and $25,000 in Stock B, what is the beta of this portfolio? e) Expected return on the market (RM ) is 12% and the risk-free (rf) is 3%. What must the expected return on the portfolio according to CAPM? (Use the beta you have calculated in section d) for CAPM)
b) Calculate the beta of the following portfolio. Amount invested Stock Security Beta A RM6,700 1.58 B RM4,900 1.23 C RM8,500 0.79
Asset W has an expected return of 8.8 percent and a beta of .90. If the risk-free rate is 2.6 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations. Enter your expected returns as a percent rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places, e.g., 32.161.) Portfolio Expected Percentage of Portfolio in Asset W Portfolio Return Beta 0 % 2.60 % 25 4.15 % 0.225 50 5.70 % 0.450 75 7.25 % 0.680 100 8.80 % 0.900 125 10.35 % 1.130 150 11.90 % 1.350 If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Slope of the line
Assume these are the stock market and Treasury bill returns for a 5-year period: Year 2016 2017 2018 2019 2020 Stock Market Return (%) 33.30 13.20 -3.50 14.50 23.80 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) 3 Required A Required B T-Bill Return Complete this question by entering your answers in the tabs below. Standard deviation (%) 0.12 0.12 0.12 0.07 0.09 x Answer is complete but not entirely correct. Required C What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. 13.69 X % घ
You decide to invest in a portfolio consisting of 15 percent Stock X, 51 percent Stock Y, and the remainder in Stock Z. Based on the following information, what is the standard deviation of your portfolio? State of Economy Probability of State Return if State Occurs of Economy Stock X Stock Y Stock Z Normal .77 10.50% 3.90% 12.90% Boom .23 17.80% 25.80% 17.30% Multiple Choice 5.79% 2.51% 3.35% 8.44% 7.24%
Stock A Stock BRate of Return Probability Rate of Return Probability14 0.15 20 0.2016 0.20 18 0.1817 0.30 16 0.3219 0.15 14 0.1420 0.20 10 0.16 a. Calculate the expected return for both stock A and stock B b. Calculate the standard deviation for both stock A and stock B c. Calculate the coefficient of variation for both stock A and stock B.
K (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 Common Stock B Return 13% 17% 18% Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a spreadsheet.) Return -7% 5% 16% 21% www a. Given the information in the table, the expected rate of return for stock A is 16.40 %. (Round to two decimal places.) The standard deviation of stock A is 1.74 %. (Round to two decimal places.) b. The expected rate of return for stock B is 9.8 %. (Round to two decimal places.) The standard deviation for stock B is 6.12 %. (Round to two decimal places.)