It's best to add columns for deviation, standard deviation, and squared deviation multiplied by probability. b. Compute the expected return and risk for the following two scenarios:AB1 State of Economy Probability of State Expected Market Return2 Fast growth0.1330%3 Slow growth0.3315%4 No growth0.302%5 Recession0.20-18%6 Depression0.04-25%AB1 State of Economy Probability of State Expected Market Return2 Fast growth0.1540%3 Slow growth0.35184 No growth0.345 Recession0.15-206 Depression0.01-35 10-32 Spreadsheet Problem Build a spreadsheet that automatically computes the expected market return and risk fordifferent assumptions about the state of the economy.a. First, create a spreadsheet like the one shown below and compute the expected return and standard deviation.ABC1 State of Economy Probability of State Expected Market Return2 Fast growth0.1335%3 Slow growth0.4217%4 No growth0.253%5 Recession0.18-15%6 Depression0.02-30%7Sum =1.00Expected return =10Standard deviation =

Expected Return and standard deviations are calculated as below:

b. Compute the expected return and risk for the following two scenarios: A B C 1 State of Economy Probability of State Expected Market Return 2 Fast growth 0.13 30% 3 Slow growth 0.33 15% 4 No growth 0.30 2% 5 Recession 0.20 -18% 6 Depression 0.04 -25% A B 1 State of Economy Probability of State Expected Market Return 2 Fast growth 0.15 40% 3 Slow growth 0.35 18 4 No growth 0.34 5 Recession 0.15 -20 6 Depression 0.01 -35

b. Compute the expected return and risk for the following two scenarios: A B C 1 State of Economy Probability of State Expected Market Return 2 Fast growth 0.13 30% 3 Slow growth 0.33 15% 4 No growth 0.30 2% 5 Recession 0.20 -18% 6 Depression 0.04 -25% A B 1 State of Economy Probability of State Expected Market Return 2 Fast growth 0.15 40% 3 Slow growth 0.35 18 4 No growth 0.34 5 Recession 0.15 -20 6 Depression 0.01 -35

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 25SP: Start with the partial model in the file Ch07 P25 Build a Model.xlsx on the textbook’s Web site....

See similar textbooks

Similar questions

Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Recession .21 −.04 Normal .65 .16 Boom .14 .22 Calculate the expected return. Multiple Choice 13.15% 2.27% 12.64% 13.27% 12.01%
CНАРTER 8 P8-1 Expected Return Given these three economic states, their likelihoods, and the potential returns, compute the expected return, standard deviation and coefficient of variation: Economic Probability Return State Fast Growth 0.10 50% Slow Growth 0.80 15% Recession 0.10 -30%
Considering the following information gathered: State of Economy Probability of State of Economy Rate of Return if State Occurs Recession 0.11 -0.03 Normal 0.45 0.16 Boom 0.44 0.29 Please Calculate the expected return. Multiple Choice 18.65% 2.80% 19.63% 20.61% 20.42%
Start with the partial model in the file Ch07 P25 Build a Model.xlsx on the textbook’s Web site. Selected data for the Derby Corporation are shown here. Use the data to answer the following questions. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year-4 free cash flow). Assume growth becomes constant after Year 3. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year-0 value of operations. Calculate the estimated Year-0 price per share of common equity.
Exhibit 7.1USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Rates of Return Year RA Computer Market Index 1 13 17 2 9 15 3 –11 6 4 10 8 5 11 10 6 6 12 Refer to Exhibit 7.1. The equation of the characteristic line for RA is a. RRA = –7.98 + 1.1023RMI. b. RRA = –9.41 + 1.3893RMI. c. RRA = –4.92 – 0.7715RMI. d. RRA = 11.63 + 1.2195RMI. e. RRA = 4.92 + 0.7715RMI.
Computer the expected return given these three economic states, their likelihoods, and the potential returns. Economic State Probability Return Fast Growth 0.40 25% Slow Growth 0.55 12% Recession 0.05 -50% Multiple Choice ___ -4.3 percent ___ 14.1 percent ___ 19.1 percent ___ 29.0 percent
You are given the following information: State of Probability of Rate of Return Economy State of Economy If State Occurs Depression Recession .13 -102 22 .062 Normal .48 .133 Boom .17 .214 a. Calculate the expected return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return b. Standard deviation % %
Consider the following scenario analysis: Scenario Recession Normal economy Boom. Probability 0.20 Stocks Bonds 0.60 0.20 a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? b. Calculate the expected rate of return and standard deviation for each investment. c. Which investment would you prefer? Expected Rate of Return 1.3% 0.8 % Complete this question by entering your answers in the tabs below. Required A Required B Required C Calculate the expected rate of return and standard deviation for each investment. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place. Rate of Return. Bonds 14% 8% 4% Standard Deviation Stocks -5% 15% 25% 15.3 Answer is complete but not entirely correct. % 8.1 % Dequired A Required
Expected Return Compute the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth .2 30.9 % Slow Growth .4 6.45 % Recession .4 -2.45 % A. 9.9% B. 9.7% C. 7.8% D. 17.5%
H3. Compute the standard deviation of the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.2 30% Slow Growth 0.5 6% Recession 0.3 −2% Please show proper step by step calculation
Expected Return Compute the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth .2 30.8 % Slow Growth .5 6.40 % Recession .3 -2.40 %
Chapter 13 - Dropbox 2.4 Problem 1: Calculating Expected Return Based on the following information, calculate the expected return: Probability of this Portfolio Return if State of Economy Recession Normal Boom State Occuring State Occurs 10% - 18% 60% 11 % 30 % 26% Create your Original Solution Below - Be sure to show all calculations and clearly indicate answers.