The probability distribution of the returns of two assets, A and B, are shown in the tablebelow. Calculate the covariance between the returns of asset A and asset B.State of EconomyProbability of StateReturn of Asset AReturn of Asset BBoom0.2040%5%Normal0.4520%10%Slow Down0.250%15%Recession0.10-20%30%O-0.3750-0.01140.3750-50.2500-2.525

The combined variability of two variables is described by covariance. When there is a positive…

Answered: The probability distribution of the…

Principles of Accounting Volume 2

19th Edition

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Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 14MC: This calculation determines profitability or growth potential of an investment, expressed as a...

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Use the following table to calculate the expected return from the asset. Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 20.00% 18.75% 17.50% 15.00%
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.
The possible rates of return of two assets, A and B, under different economic conditions are given below: Economic Situation Probability Return of Asset A Return of Asset B Recession 0.2 10% 6% Stable 0.5 14% 15% Growth 0.3 20% 11% An investor places 50% of his funds in Asset A and 50% in Asset B. [Note: you may use correlation between A and B as 0.2401] Required: (i)Calculate the risk and expected return for each asset. (ii)Calculate the risk and expected return of the investor’s 2-assets portfolio. (iii) What do you understand by total risk?
Four assets have the following distribution of returns. Probability Rate of return (%)Occurrence A B C D0.1 10.0 6.0 14.0 2.00.2 10.0 8.0 12.0 6.00.4 10.0 10.0 10.0 9.00.2 10.0 12.0 8.0 15.00.1 10.0 14.0 6.0 20.0 In each asset alculate The expected rate of return, standard deviation, variance coefficient of variation
The probability distributions of expected returns for the assets are shown in the following table: Asset A Prob Return 0.2 -5% 0.4 10% 0.4 15% a) Calculate the expected return for asset A. b) Calculate the standard deviation for asset A.
Asset M Asset N j P?? Return, ?? P?? Return, ?? 1 0.25 10% 0.15 10% 2 0.25 -6% 0.30 8% 3 0.15 2% 0.20 15% 4 0.20 5% 0.05 0% 5 0.15 20% 0.30 -2% Calculate the expected value of return, ?̅, for each of the two assets. Which provides the largest expected return? Calculate the standard deviation, ?? , for each of the two assets’ returns. Which appears to have the greatest risk? Calculate the portfolio expected return if you invest 27% of your wealth in M and 73% inN, of your total wealth of $40,000.
Use the information from this table to find the covariance for each asset. State of Economy Probability of State Return on Asset J Return on Asset K Boom 30% 5% 24% Growth 40% 5% 12% Stagnant 20% 5% 4% Recession 10% 5% -10%
Expected return and standard deviation. Use the following information to answer the questions. State of Economy Probability of State Return on Asset R in State Return on Asset S in State Return on Asset T in State Boom 0.25 0.020 0.270 0.490 Growth 0.35 0.020 0.110 0.280 Stagnant 0.22 0.020 0.140 0.020 Recession 0.18 0.020 −0.030 −0.150 a. What is the expected return of each asset? b. What are the variance and the standard deviation of each asset? c. What is the expected return of a portfolio with equal investment in all three assets? d. What is the portfolio's variance and standard deviation using the same asset weights in part (c)? Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. a. What is the expected return of asset R? (Round to four decimal…
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. Calculate the standard deviation for each security.
Determine the ERR (External rate of return) of the cash flows if external rate (e) is given as %10. Cash Flow Year 0 1 2 3 4 5 6 7 Select one: a.0.245007 b.0.19667 c.0.168017 d.0.204146 e.0.274516 f.0.181262 g.0.228861 h.0.264278 -3000 3000 6000 -1000 2000 4000 -5000 8000
Assuming the following returns and corresponding probabilities for Asset D: Rate of Return Probability 10% 30% 15% 40% 20% 30% Compute for: a. Expected rate of return b. The standard deviation c. The coefficient of variation
Possible returns and their probabilities for an asset is given in the table below. The expected return is 30.25%. Calculate the standard deviation of the asset's return. Probability 0.40 0.45 0.15 13.92% O 17.84 % 18.55% O 19.09% 16.59% Return 0.52 0.17 0.12

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