State ofEconomyBustProbability of Security Returns if State OccursState of EconomyRollRoss-10%Boom2821%80.400.60Calculate the volatility of a portfolio of 35 percent Roll and 65 percent Ross by filling in the following table:Note: Do not round intermediate calculations. Enter all answers, except the standard deviation, as decimals rounded to 5decimal places. Enter the standard deviation as a percent rounded to 2 decimal places.Calculating Portfolio VarianceState ofEconomyProbabilityof State ofEconomyPortfolio Return ifState OccursSquaredDeviation fromExpectedReturnProductBust0.40Boom0.60σ2p=Op=%

To calculate the volatility of a portfolio consisting of 35% Roll and 65% Ross, we first need to…

Answered: State of Economy Bust Probability of…

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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Consider the following information about Stocks I and II: Rate of Return if State Occurs Probability of State of State of Economy Recession Economy Stock I Stock Il .25 .06 -.30 Normal .45 .18 .06 Irrational exuberance .30 .12 .45 The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.) The standard deviation on Stock I's return is deviation on Stock II's return is stock's systematic risk/beta, Stock percent, and the Stock I beta is percent, and the Stock II beta is . The standar Therefore, based on the is "riskier".
The information about asset X and Y are given as follows: Expected Standard Asset Return Deviation 10% 4% Y 15% 11% Correlation = -1 If it is possible to borrow at the risk-free rate, rf, calculate the following: Weight of Stock A: % (Round to two decimals) Weight of Stock B: % (Round to two decimals) Risk free rate: % (Round to two decimals)
Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Probability of State of Security Return if State Occurs State of Economy Recession Economy 0.30 Normal Вoom -6.5% 9.0 16.6 0.55 0.15
Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180 Repete Col 1.39 0.153 What is the risk-free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places) Risk-free rate % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. Repete Co.%
Consider the following information about Stocks I and ll: Rate of Return If State Occurs Probability of State of- Economy .15 State of Economy Stock I Stock II Recession .05 -.21 Normal .70 .18 .10 Irrational exuberance .15 .07 .39 The market risk premium is 7 percent, and the risk-free rate is 3.5 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.) The standard deviation on Stock l's return is percent, and the Stock I beta is The standard deviation on Stock Il's return is percent, and the Stock II beta is Therefore, based on the stock's systematic risk/beta, Stock is riskier.
Consider the following information: Portfolio Expected Return Standard Deviation Risk-free 7% 0% Market 11.6 28 A 10.0 17 Required: a. Calculate the Sharpe ratios for the market portfolio and portfolio A. (Round your answers to 2 decimal places.) b. If the simple CAPM is valid, is the above situation possible?
You have $100,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 12.1 percent. Stock X has an expected return of 10.28 percent and a beta of 1.20, and Stock Y has an expected return of 7.52 percent and a beta of .80. a.How much money will you invest in Stock Y? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b.What is the beta of your portfolio? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) a. Investment in Stock Y b. Portfolio beta
Consider the following information about Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession .20 .05 −.22 Normal .55 .20 .09 Irrational exuberance .25 .08 .42 The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.)
Compute the abnormal rates of return for the following stocks during period t (ignore differential systematic risk): Stock % % % % BFT % B F T UE Rit = return for stock i during period t Rmt = return for the aggregate market during period t Use a minus sign to enter negative values, if any. Round your answers to one decimal place. ARBE: ARF: ARTI: ARC: AREL: с Rit 11.5% 9.2 12.5 12.5 15.9 Rmt 4.7% 6.2 6.6 15.2 11.1
The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the following information? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Probability of Rate of Return if State State of the Economy State of Economy Вoom Occurs 0.35 16% Normal 14% 0.65
Consider the following information: Rate of Return If State Occurs State of Probability of State of Economy Stock A Economy Stock B Recession .15 .06 - 10 Normal .56 .09 .19 Вoom .29 .14 .36 . 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.) . 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.) Stock A expected return % Stock B expected return % Stock A standard deviation % Stock B standard deviation %
Consider the following information on Stocks I and II: Probability of Rate of Return if State Occurs State of Economy State of Economy Stock I Stock II Recession Normal .24 .59 .030 -.34 .340 .26 Irrational .17 .200 .44 exuberance The market risk premium is 11.4 percent, and the risk-free rate is 4.4 percent. a. Calculate the beta and standard deviation of Stock I. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. b. Calculate the beta and standard deviation of Stock II. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskier"? a. Beta Standard deviation b. Beta Standard deviation % % c. Most systematic risk d. Most unsystematic risk e. "Riskier" stock

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