A stock is expected to return chance of a normal economy a 22% chance of a boom and a 11% chance of a recession. The expected return on the stock is in a normal economy, 14% if the economy booms and lose and the economy moves into a recessionary period Economists predict a 67%
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- A stock is expected to return 13 percent in an economic boom, 10 percent in a normal economy, and 3 percent in a recessionary economy. Which one of the following will lower the overall expected rate of return on this stock? A. An increase in the rate of return for a normal economy B. A decrease in the probability of a recession occurring C. A decrease in the probability of an economic boom D. No overall change in the rate of return in a recessionary economyAssume the economy has an 6 percent chance of booming, am 8 percent chance of being recessionary, and being normal the remainder of the time. A stock is expected to return 22.5 percent in a boom, 11.5 percent in a normal economy, and −8 percent in a recession. What is the expected rate of return on this stock?A stock is expected to return 13 percent in an economic boom, 10 percent in a normal economy, and 3 percent in a recessionary economy. All else equal, which one of the following will lower the overall expected rate of return on this stock? A decrease in the probability of a recession occurring An increase in the rate of return in a recessionary economy A decrease in the probability of an economic boom
- Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession E (r) = Σs=1 P(s)r(s) Var (r) = ² = Probability 0.3 0.4 0.3 Σs ₁ p (s)[r (s)- E (r)]² HPR 44% 14 -16 SD (r) = 0 = Var (r) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)suppose your expectations regarding the stock market are as follows: State of the Economy Probability HPR Boom 0.2 42% Normal growth 0.6 23 Recession 0.2-17 E(r) = Σss = 1p(s)r( s) Var(r)=\sigma 2 = Σss = 1p(s)[r(s)-E(r)]2 SD (r)=\sigma = Var(r) ✓ Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession Probability 0.3 0.6 0.1 Mean Standard deviation HPR 24.90 % % 41% 24 E (r) E-1P(s)r (s) Var (r) = o² = s-1p(s)[r (s) - E(r)]² SD (r) = o = √Var (r) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculation Round your answers to 2 decimal places.) -18 K
- Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession E(r) p(s)r(s) = Probability HPR 0.4 43% 0.5 23 0.1 -16 Var (r) = P(s)[r(s) - E(r)]² = SD (r) ==√√Var (r) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Mean Standard deviation % %You live in a world where three future states are possible: Boom, Normal and Recession. See the probablities of these states in the attched table. Consider a stock which you expected to have the following returns in these states of the economy. State Probability Boom Normal Recession O 6.52% οιοιοι What is the standard deviation of returns on an investment in this stock? 6.37% ○ 4.62% 25% 55% 20% O 7.17% State Expected Return 0.15 0.08 -0.04You live in a world where three future states are possible: Boom, Normal and Recession. See the probablities of these states in the attched table. Consider a stock which you expected to have the following returns in these states of the economy. State Probability Boom Normal Recession O 9.05% O 7.35% What is the expected return on an investment in this stock? 6.00% 25% 55% 20% O 3.75% State Expected Return 0.15 0.08 -0.04
- 5. Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession Probability 0.3 0.4 0.3 Use Equations 5.10-5.12 to compute the mean and standard deviation of the HPR on stocks. HPR 44% 14 -16 (LO 5-4) Page 141There is 11 percent probability of recession, 14 percent probability of a poor economy, 44 percent probability of a normal economy, and 31 percent probability of a boom. A stock has returns of −19.3 percent, 2.9 percent, 10.7 percent and 26.4 percent in these states of the economy, respectively. What is the stock's expected return? Multiple Choice 10.24% 13.30% 15.42% 5.18% 11.18%Question 7 You expect that the likelihood of economic recession and boom is 20% and 80% respectively. Based on this basic forecast, you further estimate the returns for two stocks when the economy state is either recession and boom. Your estimation is as follow: Probability of State of Economy State of Economy Returns if State Occurs Stock A Stock B Recession Boom 0.20 -0.30 -0.01 0.80 0.15 0.10 The market risk premium is 4%, and the risk-free rate is 1.5%. a) What are the expected returns of the two stocks? b) What are the standard deviations of the two stocks? c) What are the beta of the two stocks? d) Based on your calculation in b and c, which stock is risker in terms of total risk, which stock is riskier in terms of systematical risk? e) If you invest 50% in stock A and 50% in stock B, what is the expected return and standard deviation of your portfolio?