Problem 11-36 SMLSuppose you observe the following situation:State ofEconomyBustNormalBoomReturn if State OccursProbability ofStateStock AStock B.20-13-11.55.082.08.2543.23a. Calculate the expected return on each stock. (Do not round Intermediatecalculations and enter your answers as a percent rounded to 2 decimal places, e.g..32.16.)b. Assuming the capital asset pricing model holds and Stock A's beta is greater thanStock B's beta by .65, what is the expected market risk premium? (Do not roundIntermediate calculations and enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)a. Stock Aa.Stock Bb. Expected market risk premium%%%

Compute the expected return and expected market risk premium:Formulas:

Answered: Problem 11-36 SML Suppose you observe…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are given the following information: Return on State of Economy Stock A Bear Normal Bull Return on Stock B 111 -.054 157 106 .082 242 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .321616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .3216.) a. Stock A expected return…
Based on the following information: State of Economy Probability of State of Economy Return on Stock J Return on Stock K Bear .20 -.030.024 Normal .55.128.052 Bull .25 .208.082 a. Calculate the expected return for each of the stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for each of the stocks. ( Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g , 32.16.) c. What is the covariance between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.)
Given the returns and probabilities for the three possible states listed below, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 8.10 percent and 11.60 percent, respectively. (Round answer to 4 decimal places, e.g. 0.0768.) Good OK Poor Covariance Probability 0.22 0.60 0.18 Return on Stock A 0.30 0.10 -0.25 Return on Stock B 0.50 0.10 -0.30
Back to Assignment Attempts 0 1. Problem 8.01 (Expected Return) eBook A stock's returns have the following distribution: Average 0 / 4 Standard deviation: Coefficient of variation: Sharpe ratio: 0.1 0.1 0.3 0.3 0.2 1.0 Assume the risk-free rate is 2%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places. Stock's expected return: % Problem Walk-Through % Demand for the Company's Products Probability of this Demand Occurring Weak Below average Average Above average Strong Rate of Return if this Demand Occurs (30%) (10) 18 37 63
What are the expected returns of stock "A" and "B"? Enter your answers as a percentage. Do not put the percent sign in your answers. Round your answers to 2 DECIMAL PLACES.\\n \\nE(ra)= \\nCorrect response: 4.52\\\\pm 0.01\\nE(rb)= \\nCorrect response: 6.04\\\\pm 0.01\\n \\nClick "Verify" to proceed to the next part of the question.\\nThis questions has 4 parts (i.e., you will be clicking "Verify" 4 times)\\n \\n \\n \\n\\n \\n \\nWhat are the standard deviations of stocks "A" and "B"? Enter your answers as a percentage. Do not put the percent sign in your answers. Round your answers to 2 DECIMAL PLACES.\\n \\nSDa= \\nCorrect response: 8.49\\\\pm 0.01\\nSDb= \\nCorrect response: 13.06\\\\pm 0.01\\n \\nClick "Verify" to proceed to the next part of the question.\\n \\n \\n \\n \\n \\n \\nWhat is the expected return of the portfolio? Enter your answer as a percentage. Do not put the percent sign in your answer. Round your answer to 2 DECIMAL PLACES.\\n \\nE(rp)= \\n \\nClick…
Return if State Occurs Probability of State State of Economy Stock A Stock B Bust .10 -.12 -.05 Normal .65 .09 .10 Boom .25 35 21 a. Calculate the expected return on each stock.
Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-earnings multiple of 11.0 and is priced to offer a 10.9% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.6%. Calculate the following: Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e, stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below. Reg A to E Reg F to G2…
You are given the following information: State of Economy Bear Normal Bull Return on Stock A a. Stock A Stock B b. Stock A Stock B 114 103 085 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.) Return on Stock B C.…
State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .15 .04 −.17 Normal .55 .09 .12 Boom .30 .17 .27 a. Calculate the expected return for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
QUESTION 2 Copy of In each small interval of time the stock price is assumed to move up by a proportional amount or to move down by a proportional amount d Consider the following binomial tree Suppose So-70.70, o =40%, At =0.0833 89.07 A. 70.70 70.70 B 56.12 Find the value of B?
Expected Returns: Discrete Distribution The market and Stock ) have the following probability distributions: Probability 0.3 14% 19% 0.4 10 0.3 17 11 a. Calculate the expected rate of returm for the market. Round your answer to two decimal places. Calculate the expected rate of retum for Stock ), Round your answer to two decimal places. b. Calculate the standard deviation for the market. Do not round intermediate calculations. Round your answer to two decimal places. Calculate the standard deviation for Stock J. Do not round intermediate calculations Round your answer to two decimal places.
Search Review View Help E A A 而、三三。 Ji Text Direction Y Align Text v 三三三、 n{} ☆ Arrange Quick Styles Y Convert to SmartArt Paragraph Drawing Examples Given the following information, what is the standard deviation of the returns on this stock? Probability of State of Economy 04 State of Economy Rate of Return Вoom .26 Normal 74 17 Recession 22 -44

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