hares in SergeantPepper will earn a return of 5.80% during a bull market, and 2.40% during a bear market. Shares in AbbeyRoad will earn a return of 8.00% during a bull market, and 1.90% during a bear market. Over the next year, there is a 74% chance of a bull market, otherwise it will be a bear market. What is the covariance of the two security returns? 0.003552 0.000786 0.000399 0.000175

hares in SergeantPepper will earn a return of 5.80% during a bull market, and 2.40% during a bear market. Shares in AbbeyRoad will earn a return of 8.00% during a bull market, and 1.90% during a bear market. Over the next year, there is a 74% chance of a bull market, otherwise it will be a bear market. What is the covariance of the two security returns? 0.003552 0.000786 0.000399 0.000175

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 15P

See similar textbooks

Similar questions

Over the next year, the stock market will either be a bull market or a bear market. The probability of a bull market is 25.00%, while the probability of a bear market is 84.00%. Shares in Meguire and Company will have a return of 16.80% in a bull market, and -8.30% in a bear market. The risk-free rate is 2.90%. What is the Sharpe Ratio of Meguire and Company shares?
For the upcoming year, the risk-free rate is 2 percent, and the expected return to the market is 7 percent, and the standard deviation of the market is 20 percent. You are also given the following covariance matrix for Securities J, K, and L. Covariance Security J Security K Security J 0.0012532 0.0010344 Security K 0.0010344 0.0023717 0.0013558 Security L 0.0019711 0.0013558 0.0048442 Also assume that you form a portfolio by putting 40 percent of your funds in Security J, O percent of your funds in Security K, and 60 percent of your funds in Security L. Based on this information, determine the required return of the resulting portfolio, based on the Capital Market Line (CML). O 3.17% O 2.94% O 3.49% O 3.34% Security L 0.0019711 O 3.64%
Over the next year, the stock market will either be a bull market or a bear market. The probability of a bull market is 35.00%, while the probability of a bear market is 65.00%. Shares in Meguire and Company will have a return of 17.90% in a bull market, and -17.20% in a bear market. What is the Volatility of Meguire and Company shares? 17.45% 15.97% 17.55% 16.74%
Over the next year, there is a 78% chance of the market being in state 1, otherwise it is in state 2. Shares in Cornelius.com will earn a return of 5.10% in state 1, and 6.30% in state 2. Shares in GiantBadger will earn a return of 8.20% in state 1, and 1.70% in state 2. What is the covariance of the two security returns? 0.000133 -0.000332 0.003498 -0.000134
For the upcoming year, the risk-free rate is 2 percent, and the expected return to the market is 7 percent. You are also given the following covariance matrix for Securities J,K, andL. \table[[Covariance,Security J,Security K,Security L],[Security J,0.0012532,0.0010344,0.0019711],[Security K,0.0010344,0.0023717,0.0013558],[Security L,0.0019711,0.0013558,0.0048442]] Also assume that you form a portfolio by putting 0 percent of your funds in Security J, 40 percent of your funds in Security K, and 60 percent of your funds in Security L. Based on this information, determine the standard deviation of the resulting portfolio. ◻ 6.47% 5.27% 4.98% 5.82% 4.77%
Your broker has recommended that you purchase stock in Alacan, Inc. She estimates that the 1-year target price is $76.00, and Alacan consistently pays an annual dividend of $17.00. Analysts estimate that the stock has a beta of 0.91. The current risk-free rate is 2.70% and the market risk premium (RM - RF) is 9.50%. Assuming that CAPM holds, what is the intrinsic value of this stock?
You are thinking of buying a stock priced at $100 per share. Assume that the risk-free rate is about 4.5% and the market risk premium is 6%. If you think the stock will rise to $117 per share by the end of the year, at which time it will pay a $1 dividend, what beta would it need to have for this expectation to be consistent with the CAPM?
HEJO company has the current stock price of $20 today. Use a 1 step binomial tree to estimate the price of a oneyear call on thisstock. Assume the price can increase or decrease by 10% in in the next year with equal likelihood. Risk free rate is 2%, the strike is $21. A. Find the hedge ratio(H), (make sure have the correct sign, this will be written out as a decimal Answer: 0.25 B) Find the call's value or price today Answer: .58 C) Using the above information to price a put using call parity. Answer: 1.17 Please explain without using excel.
Suppose you bought XYZ stock 1 year ago for $6.54 per share and sell it at $2.79. You also pay a commission of $0.35 per share on your sale. What is the total return on your investment? The total return is %?
The market risk premium for next period is 9.00% and the risk-free rate is 2.40%. Stock Z has a beta of 1.174 and an expected return of 14.40%. What is the: a) Market's reward-to-risk ratio? b) Stock Z's reward-to-risk ratio
The Black-Scholes model is used by Blue Co. to value call options of the stock of Gold Inc. The following information was determined: · The share price is P40. · The option matures in 1 year · Risk-free rate is 2.50%. · d1 = 0.70 · d2 = 0.30 The variance of the rate of return of the share is
For a two-period binomial model, you are given: Each period is one year. The current price for a non dividend-paying stock is 20. u = 1.2840, where u is one plus the rate of capital gain on the stock per period if the stock price goes up. d = 0.8607, where d is one plus the rate of capital loss on the stock per period if the stock price goes down. The continuously compounded risk-free interest rate is 5%. Calculate the price of an American call option on the stock with a strike price of 22.