The security analysit has obtained the following information based on the future focused possible states of economy in a country. Economy Probability Shares of Y Ltd Shares of Z Ltd Boom 0.5 18% 14% Average 0.4 12% 11% Reccession 0.1 8% 9% compute; Expected rate of return variance and standard deviation Coefficient of variation for each project
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The security analysit has obtained the following information based on the future focused possible states of economy in a country.
| Economy | Probability | Shares of Y Ltd | Shares of Z Ltd |
| Boom | 0.5 | 18% | 14% |
| Average | 0.4 | 12% | 11% |
| Reccession | 0.1 | 8% | 9% |
compute;
- Expected
rate of return - variance and standard deviation
- Coefficient of variation for each project
Step by step
Solved in 3 steps with 2 images
- Consider the following information about the various states of the economy and the returns of various investment alternatives for each scenario. Answer the questions that follow. Question 1 Fill in the parts in the above table that are empty. Using the data generated in the previous question (Question 1); Plot the Security Market Line (SML) 2. Superimpose the CAPM’s required return on the SML % Return on T-Bills, Stocks, and Market Index State of the Economy Probability T- Bills Phillips Pay- up Rubber- made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean Standard Deviation Coefficient of Variation Covariance with MP…Consider the following information about the various states of economy and the returns ofvarious investment alternatives for each scenario. Answer the questions that follow.% Return on T-Bills, Stocks and MarketIndexState of the Economy Probability TBills Phillips PayupRubbermadeMarketIndexRecession 0.2 7 -22 28 10 -13Below Average 0.1 7 -2 14.7 -10 1Average 0.3 7 20 0 7 15Above Average 0.3 7 35 -10 45 29Boom 0.1 7 50 -20 30 43MeanStandard DeviationCoefficient of VariationCovariance with MPCorrelation with Market IndexBetaCAPM Req. ReturnValuation(Overvalued/Undervalued/FairlyValued)Nature of stock(Aggressive/Defensive)Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Each line item is worth 2 marksQuestion 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and…Consider the following information about the various states of economy and the returns ofvarious investment alternatives for each scenario. Answer the questions that follow.% Return on T-Bills, Stocks and MarketIndexState of the Economy Probability TBills Phillips PayupRubbermadeMarketIndexRecession 0.2 7 -22 28 10 -13Below Average 0.1 7 -2 14.7 -10 1Average 0.3 7 20 0 7 15Above Average 0.3 7 35 -10 45 29Boom 0.1 7 50 -20 30 43MeanStandard DeviationCoefficient of VariationCovariance with MPCorrelation with Market IndexBetaCAPM Req. ReturnValuation(Overvalued/Undervalued/FairlyValued)Nature of stock(Aggressive/Defensive)Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an…
- 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.Calculate the expected return from the following security using the CAPM Capital Asset Pricing Model: Standard Deviation of Security = 0.18 Standard Deviation of Market Portfolio = 0.10 Expected Return on Market Portfolio = 0.09 Correlation between possible Returns for the Security and the Market Portfolio = 0.70. Expected Risk Free Rate = 0.03Based on the following probability distribution, what is the security's expected return? State Probability 1 0.2 -5.0% 2 0.3 10.0 3 0.5 30.0 What is the expected return of the following investment? Probability Payoff
- Consider the following information about the various states of economy and the returns of various investment alternatives for each scenario. Answer the questions that follow. Work out the Covariance with mp showing detatiled working and explanation % Return on T-Bills, Stocks and Market Index States of Economy Probability T-Bills Phillips Pay-up Rubber-Made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean 7 16.9 20.7 19.6 15 Variance (%) ^2 0 549.09 244.124 358.04 313.6 Standard Deviation 0 23.4326695 15.6244712 18.92194493 17.7087549 Coefficient of Variation 0 1.386548491 7.54805372 0.965405354 1.18058366 Covariance wit MP Correlation with Market Index…Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year 1 2 O21.20% 3 4 5 6 O22.34% O 23.49% O24.63% O24.10% Market 10.00% 12.00% 16.00% 14.00% 12.00% 10.00% Security J 12.00% 14.00% 18.00% 22.00% 18.00% 14.00%What is the internal rate of return of an investment that requires a 10 percent minimum rate of return and has the following projected cash flows: Yr0 = -100, Yr1 = 25, Yr2 = 35, Yr3 = 45, Yr4 = 35, and Yr5 = 30? a. 19.33 percent b. 21.35 percent c. 20.05 percent d. 22.24 percent
- Compute for the answer and show your solution. 1. The following are annual rates of return for PHILIPPINES government T-bills and Singapore common stock. (10pts) Year 2014 2015 2016 2017 2018 Philippines 063 .081 .076 Singapore .150 .043 374 192 .090 .085 106 Compute the following for the series. a. arithmetic mean rate b. Variance c. Standard variation d. Covariance Given the above data, which is a better investment? Explain using the result of the data.Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi. (b) Calculate the optimal weight of combining asset i and the index portfolio M . (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .Investment Alternatives Corn Belt (1) Central Valley (2) Great Plains (3) Exp. Return ri =0.14 r2=0.12 r3=0.07 Std. Dev. 01=0.08 02=0.05 03=0.01 Weight in Portfolio Wi=1/3 W2=1/3 W3=1/3 Correlation Among Investment 1 and 2 (p12)= 0.30 1 and 3 (p13) = -0.40 2 and 3 (p23) = -0.10 %3D Portfolio Data for Financial Servicing Analysis Under Risk a. Calculate the expected return of the portfolio. b. Calculate the variance and the standard deviation of the portfolio. c. Calculate the variance and standard deviation of the portfolio assuming that the correlation among the investments is all equal to 0.