Security Returns if State Occurs State of Economy Probability of State of Economy Roll Ross Bust .40 −11 % 15 % Boom .60 22 5 Calculate the expected return on a portfolio of 50 percent Roll and 50 percent Ross by filling in the following table: (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) State of Economy Probability of State of Economy Portfolio Return if State Occurs Product Bust .40 % % Boom .60 % % E(Rp)= %

Security Returns if State Occurs State of Economy Probability of State of Economy Roll Ross Bust .40 −11 % 15 % Boom .60 22 5 Calculate the expected return on a portfolio of 50 percent Roll and 50 percent Ross by filling in the following table: (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) State of Economy Probability of State of Economy Portfolio Return if State Occurs Product Bust .40 % % Boom .60 % % E(Rp)= %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 26P

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Probability State of of State of Economy Economy 0.40 0.60 Bust Boom State of Economy Bust Boom Security Returns if State Occurs Calculate the expected return on a portfolio of 55 percent Roll and 45 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Roll -17% 28% Probability of State of Economy 0.40 0.60 Ross 18% 7N Answer is complete but not entirely correct. Portfolio Return if State Occurs 0.04% 11.40% E(R) Product 5.50% 5.13 % 10.63 %
State of Economy Bust Boom Probability of State of Economy 0.30 0.70 Bust Boom Security Returns if State Occurs Roll -17% 17% State of Probability Portfolio Return if Economy of State of Economy State Occurs 0.30 0.70 Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the following table: 5 Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers percent rounded to 2 decimal places. % Ross 18% 5% E(Rp)= Product Check my wc % % %
State of Economy Probability ABC Company Expected Return Expected Return XYZ Company Very Poor 0.30 -9% -19% Poor 0.25 -8% -6% Good 0.15 8% 9% Very Good 0.30 34% 33% Expected Return 6.70% 4.05% A) Calculate the covariance of the portfolio. Please answer as a decimal to 4 decimal places. Answer:
Consider the following information: State of Probability of Portfolio Return Economy State of Economy If State Occurs Recession <- Boom 21 .79 Expected return 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.) 11 .21 %
State of Economy Bust Boom State of Economy Probability of State of Economy Bust Boom Probability of State of Economy 0.60 0.40 0.60 0.40 Security Returns if State Occurs Calculate the expected return on a portfolio of 30 percent Roll and 70 percent Ross by filling in the following table: (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Roll -14% 32 Portfolio Return if State Occurs % Ross E(RP)= 15% 5 Product % % %
Suppose you observe the following situation: Probability of State 0.25 0.45 0.30 State of Economy Recession Normal Irrational exuberance Stock A Stock B % % Rate of Return if State Occurs Stock B Stock A a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) Expected Return % -0.12 0.09 0.44 -0.10 0.09 0.24 b. Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.75, what is the expected market risk premium? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected market risk premium
Probability. State of of State of Economy Economy 0.30 0.70 Bust Boom State of Economy Bust Boom Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Probability of State of Economy Security Returns if State Occurs 0.30 0.70 Roll -17% 17% Portfolio Return if State Occurs Ross 18% 5% % % E(Rp) Product % 96
Probability State of of state of Economy Bust Boom Economy 0.60 0.40 Security Returns if State Occurs Roll Ross -15% 19% 26% 6% Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your ans percent rounded to 2 decimal places. State of Economy Probability Portfolio Return if of State of Economy Product State Occurs Bust 0.60 % % Boom 0.40 % % E(Rp)= ge % 13
Probability State of of State of Economy Economy 0.40 0.60 Bust Boom State of Economy Bust Boom Calculate the expected return on a portfolio of 55 percent Roll and 45 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Security Returns if State Occurs Probability of State of Economy Roll -17% 28% 0.40 0.60 Ross 18% 7% Answer is complete but not entirely correct. Portfolio Return if State Occurs 0.04 % 11.40 % E(Rp)= Product 5.50 X % 5.13 % 10.63 %
State ofEconomy Probabilityof State Return on AssetDin State Return on AssetEin State Return on AssetFin State Boom 0.35 0.060 0.310 0.25 Normal 0.50 0.060 0.180 0.20 Recession 0.15 0.060 -0.210 0.10 1.As an investor, compare Stock E with Stock F, and identify which stock willyou select and why.
Consider the following information: Rate of Return if State Occurs Probability of State of Economy .15 State of Economy Stock A Stock B Stock C Вoom .35 .40 .28 Good .45 .16 .17 .09 Рor .30 -.01 -.03 .01 Bust 10 -10 -12 -.09 Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) а. a. Expected return % b-1. Variance b-2. Standard deviation %
State ofEconomy Probabilityof State Return on AssetDin State Return on AssetEin State Return on AssetFin State Boom 0.35 0.060 0.310 0.25 Normal 0.50 0.060 0.180 0.20 Recession 0.15 0.060 -0.210 0.10 A. Calculate the expected return (mean) for each security.