Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence. Stock A Stock B 20X1 10 20 20X2 -15 -20 20X3 20 -10 20X4 25 30 20X5 -30 -20 20X6 20 60 Which of the two stocks is riskier? Why? Which of the stocks is expected to yield a higher return? Why? Where will you invest?
Q: Figure 12.11 shows plots of monthly rates of return on three stocks versus the stock market index.…
A: You have asked a question with five sub parts. I will address the first three. Please post the…
Q: 2. Suppose that three stocks (A, B, and C) and two common systematic risk factors (1 and 2) have the…
A: Expected Return on stock :The expected return is the profit or loss that an investor expects or…
Q: Questions 6 The performance (%) of one stock and one bond over the past four years is as follows:…
A: Average return refers to the return earned over a specific unit. A unit can be a share, product,…
Q: Risk and Returns. Windsor stock has produced returns of 22.6 percent, 18.7 percent, 15.7 percent,…
A: confidence interval=mean±z×standard deviationnumber of observations
Q: 1 f the return on stock A in year 1 was 17 %, in year 2 was 7 %, in year 3 was -4 6 and in year 4…
A: Financial management consists of directing, planning, organizing and controlling of financial…
Q: Stock Beta Current Price Expected Price…
A: The capital asset pricing model describes the relationship between systematic risk and the expected…
Q: five years: -29.1 percent, 16.4 percent, 35.8 percent, 3.7 percent, and 22.7 percent. The average…
A: Nominal interest rate is interest rate without effect of inflation rate and real interest rate is…
Q: Expected dividend yield 5%
A: Ans. D.stock X pays higher dividend per share than stock y
Q: Year Stock A return Stock B return 2004 (24.25%) 5.5% 2005 18.5% 26.73% 2006 38.67%…
A: Average rate of return for each stock - = Sum of all year's return/5 Year Stock A return…
Q: 5. Given the following expectations for the next year, what is the expected return, standard…
A: To determine the Expected Return, Standard Deviation and Beta of Stock A from the data. Return on…
Q: Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in…
A: The following information given in the question: 1. Price of both stock X and Y are same $25 2.…
Q: Assume that the following data available for the portfolio, calculate the expected return, variance…
A: Given information: Portfolio of stock A is 45% For stock B is 55% Expected return for A is 12.5%,…
Q: 11.2. Below are the expected returns from both stocks based on the probability of economic…
A: Expected return on a stock is the minimum amount of return in the form of profit an investor of a…
Q: Which of the two stocks is riskier? Why? Which of the stocks is expected to yield a higher return?…
A: 1) Computation: Step 2 Hence, stock B is riskier than stock A.
Q: c. An investor wants to implement a returns-based momentum strategy. Using the method in the Study…
A: Momentum investing is a strategy in which securities are bought at high to be sold at higher price.…
Q: Question 3 The following shows the expected percentage returns on three stocks over the next six…
A: Return expected by the investor from the asset or security is known as expected return. It can be…
Q: Assume that expected return of the stock A in Rachel’s portfolio is 13.6% this year. The risk…
A: The risk-free rate represents the interest an investor would expect from an absolutely risk-free…
Q: Stocks A and B have the following historical returns: Year Stock A return Stock B return 2004…
A: Portfolio return refers to the return generated by a portfolio containing various financial…
Q: Four analysts cover the stock of Fluorine Chemical. One forecasts a 5% return for the coming year.…
A: Fluorine chemical's expected return would be calculated using the mean return.
Q: Stock A and Stock B have the following historical returns: Year Stock A’s Returns,…
A: Here, we have assumed that stock A is added with a weightage of 30% and Stock B with 70% in the…
Q: Problem 3: Here are the annual returns for five different stocks. Determine the expected return and…
A: Arithmetic mean of returns=∑Returnsn SD=∑ri-ravg2n-1 Coefficient of Variation=VolatilityExpected…
Q: The risk-free rate is 3.7% and you believe that the S&P 500's excess return will be 11% over the…
A: CAPM or Capital Asset Pricing Model is the formula that represents the relationship between the…
Q: Question 3: You are an active investor in the securities market and you have established an…
A: Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
Q: Covariance and Correlation The following table shows the expected returns from six different stocks…
A: Note: all the reuired calculations mentioned in the question is solved. Covariance, Expected Return…
Q: Question: A stock that currently trades at $10 has a beta of 1.1. The risk-free interest rate for…
A: The Capital asset pricing model refers to the model which shows the relationship between the…
Q: 3.Consider the three stocks in the following table. P t represents price at time t, and Q1…
A: a, b, and c calculation: Formula snip: For better understanding of b’s calculation, the divisor is…
Q: Please answer ALL OF QUESTIONS 1 AND 2A and 2B 1. Stock R has a beta of 1.2, Stock S has a beta…
A: Required return of stock R Required return = Risk free rate + beta * required return on average…
Q: Problem: 1. Given six years of percentage return of Stock A and Stock B, identify the expected…
A: THERE ARE MORE THAN 3 QUESTIONS AND HENCE ANSWERS OF 1ST 3 SUBPARTS WILL BE PROVIDED HERE & FOR…
Q: Four analysts cover the stock of Fluorine Chemical. One forecasts a 5% return for the coming year.…
A: given
Q: Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 22 % 34 % 2 12 12 3 14…
A: Expected return is sum of probabilistic return of return. Sum of probability should be 1 to be…
Q: a. Calculate the average rate of return for each stock during the 5-year period. Do not round…
A: Expected return refers to the return earn by an investor on the amount invested during a period of…
Q: Looking at the annual returns on the two stocks, would you guess that the correlation coefficient…
A: Correlation: Computation of standard deviation of A: Computation of standard deviation of B:…
Q: Stocks A and B have the following historical returns: Year Stock A return Stock B return 2004…
A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…
Q: Four analysts cover the stock of Fluorine Chemical. One forecasts a 6% return for the coming year.…
A: Calculation of Expected Return for the coming year:The Expected Return is 4.90%.Excel Spreadsheet:
Q: Consider the three stocks in the following table. Pt represents price at time t, and Qt represents…
A: We are allowed to answer one question at a time. We’ll answer the first question since the exact one…
Q: 11.2. Below are the expected returns from both stocks based on the probability of economic…
A: Beta of a portfolio is the average beta of each security comprised in the portfolio. Beta shows the…
Q: A two-share portfolio held by an institutional investor has the following information: Years (t)…
A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: b. Your broker suggests two stocks as good to purchase; stock GAAB and stock PUFF. The two stocks…
A: Risk Free Rate = 8% Expected Return on Market Portfolio = 15.5% Dividend Growth Rate = 9% Dividend…
Q: Problem 3: Given six years of percentage return of Stock A and Stock B, identify the expected…
A: Yield: It is the total return generated by an investment over a certain period.
Problem 3:
Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence.
|
|
Stock A |
Stock B |
|
20X1 |
10 |
20 |
|
20X2 |
-15 |
-20 |
|
20X3 |
20 |
-10 |
|
20X4 |
25 |
30 |
|
20X5 |
-30 |
-20 |
|
20X6 |
20 |
60 |
- Which of the two stocks is riskier? Why?
- Which of the stocks is expected to yield a higher return? Why?
- Where will you invest?
Step by step
Solved in 6 steps with 5 images
- Problem: 1. Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence. Stock A Stock B 20X1 10 20 20X2 -15 -20 20X3 20 -10 20X4 25 30 20X5 -30 -20 20X6 20 60 a. Which of the two stocks is riskier? Why? b. Which of the stocks is expected to yield a higher return? Why? c. Where will you invest? Problem Solving: 1. Suppose you want to buy 10,000 shares of MegaWorld Corporation at a price of 4.00. You put up P10,000 and borrow the rest. What does your account balance sheet would look like? What is your margin? 2. Supposed that in the previous problem you shorted 10,000 shares instead of buying. The initial margin is 60 percent. What does the account balance sheet look like? 3. You deposited P100,000 cash in brokerage account and short sell P200,000 of stocks on margin.…Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence. Stock A Stock B 20X1 10 20 20X2 -15 -20 20X3 20 -10 20X4 25 30 20X5 -30 -20 20X6 20 60 a. Which of the two stocks is riskier? Why? b. Which of the stocks is expected to yield a higher return? Why? c. Where will you invest?Consider the following information about two stocks (D and E) and two common risk factors (factor 1 and factor 2) Stock Risk factor 1 Risk factor 2 Expected return (%) D 1.2 3.4 13.1 2.6 2.6 15.4 a. Assuming that the risk free rate is 5%, determine the risk premium for factors 1 and 2 that are consistent with the expected returns for the two stocks. You expect that in one year the prices of Stock D and E will be $55 and $36 respectively and pay no dividends. What should be the price of each stock today to be consistent with the expected return levels. b. C. Determine how to you identified if Stock D and E are overvalued, fairly valued and undervalued? d. Suppose the risk premium for factor 1 as computed in (a) increases by 0.25 percent, what will be the new expected return for D and E? e. Suppose the risk premium for factor 1 as computed in (a) decreases by 0.25%, what will be the new expected return for D and E? f. Devise how would you develop a Jensen Index using Arbitrage Pricing…
- 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.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: David owns a two-stock portfolio that invests in Falcon Freight Company (FF) and Pheasant Pharmaceuticals (PP). Three-quarters of David's portfolio value consists of FF's shares, and the balance consists of PP'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 Falcon Freight Pheasant Pharmaceuticals 0.20 0.35 0.45 Strong Normal Weak 40% 24% -32% 56% 32% -40% Calculate expected returns for…Historical Returns: Expected and Required Rates of Return You have observed the following returns over time: Assume that the risk-free rate is 5% and the market risk premium is 4%. a. What are the betas of Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. % Year 2017 2018 2019 2020 2021 % Stock X 12% 17 -13 2 22 % Stock Y 15% 7 -4 3 12 Stock X: Stock Y: b. What are the required rates of return on Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. Stock X: Stock Y: c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Do not round intermediate calculations. Round your answer to two decimal places. Market 13% 12 -10 2 15
- Consider the following average annual returns for Stocks A and B and the Market. Which of the possible answers best describes the historical betas for A and B? Years Market Stock A Stock B 1 0.03 0.16 0.05 2 −0.05 0.20 0.05 3 0.01 0.18 0.05 4 −0.10 0.25 0.05 5 0.06 0.14 0.05 a. bA > +1; bB = 0. b. bA = 0; bB = −1. c. bA < 0; bB = 0. d. bA < −1; bB = 1. e. bA > 0; bB = 1.1. Consider two stocks A and B and a market index M with the following past returns: Month A 2 3 3 5 9 B 2 M 1.5 4 1 3 4 The risk-free rate is 1%. a. Write the estimated market model equations for both stocks and a portfolio composed of 60% A and 40% B. b. Compute the coefficients of determinations. C. Estimate the returns at equilibrium for A and B and decide whether the stocks are over or undervalued. d. Compute Sharpe's, Treynor's and Jensen's performance measures for the portfolio. Consider a market with anStocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? Price Expected growth (constant) Required return X O b) $50 5% 10% Y $50 6% 11% a) Stock Y has a higher dividend yield than Stock X. One year from now, Stock X's price is expected to be higher than Stock Y price. c) Stock X has the higher expected year-end dividend. d) Stock Y has a higher capital gains yield. e) Stock X has a higher dividend vield than Stock V
- 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?Below are the annual returns of the stock A, B, C and D and the market portfolio for the period 2018-2022. Find the expected return and standard deviation of the stock A, B, C, D and the market portfolio. Asset A Asset D | 15,00 13,00 | 10,00 13,00 Prob. Asset B 9,00 Year 2018 2019 2020 2021 2022 Asset C 12,00 Market 14,00 12,00 |11,00 0,20 0,25 | 13,00 9,00 | 11,00 8,00 0,10 0,20 0,25 15,00 | 11,00 11,00 | 9,00 12,00 12,00 9,00 12,00 15,00 10,00 12,00 13,00Problem 3:Here are the annual returns for five different stocks. Determine the expected return and risk for a period of five years for each of the stocks. Problem 4:a. Find the coefficient of variation (CV) for each of the actions in problem 3.b. Explain which of the investments a risk averse investor would prefer and which a risk lover investor would prefer. Answer clearly and in detail. Show all the computations that led to the result.