EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 5, Problem 7PS
Summary Introduction
To calculate: The standard deviation and mean of the HPR on the stocks are to be determined.
Introduction: The absolute measurement of the risk is called as standard deviation(SD). It is used to represent the deviation of observation from the mean value or average value.
The mean return can be calculated by the multiplication of the probability with holding period return.
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(a) A stock’s returns have the following distribution:
Calculate the stock’s expected return, standard deviation, and the coefficient of variation.
Suppose you have the following expectations about the market condition and the returns on Stocks X and Y.
a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)?
b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?
A price-weighted index such as the DJIA is a geometric mean of current stock prices. a. True b. False
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- The metric that is used to show the extent to which a given stock’s return move up and down with the stock market? a. Correlation b. Beta c. Standard deviation d. Expected returnarrow_forwardThe table below contains the covariance matrix of stock returns and the market. Assume that the assumptions of CAPM hold. 1. Find the market risk. 2. Find the systematic risk of BlueChip.arrow_forwardUsing the data in the following table,, estimate the: a. Average return and volatility for each stock. b. Covariance between the stocks. c. Correlation between these two stocks.arrow_forward
- If the volatility of a stock is .33, find the standard deviation of: (see the attachment for the remainder of the question).arrow_forward1) what is the expected return rate for stock A 2) what is the expected return rate for stock B 3) what is the standard deviation of returns for stock A 4) what is the standard deviation of returns for stock B.arrow_forward(b) the standard deviation of the returns of the stocks A and Barrow_forward
- a. Calculate the expected return for Stock media Prima and Stock Astro 2. Calculate the standard deviation for Stock media Prima and Stock Astro 3. Calculate the covariance and correlation of coefficient for the above stock.arrow_forward(a) the expected returns of the stocks A and B.arrow_forwardWhen working with the CAPM, which of the following factors can be determined with the most precision? a. The beta coefficient of "the market," which is the same as the beta of an average stock. b. The beta coefficient, bi, of a relatively safe stock. c. The market risk premium (RPM). d. The most appropriate risk-free rate, rRF. e. The expected rate of return on the market, rM.arrow_forward
- The index model has been estimated for stock A with the following results: RA = 0.01 + 1.2RM + eA. σM = 0.15; σ(eA) = 0.10. The standard deviation of the return for stock A isarrow_forward(c) Consider information given in the table below and answers the question asked thereafter: i. Calculate expected return on each stock? On the basis of this measure, which stock you will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of this measure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of this measure, which stock you will choose?iv. Calculate covariance and coefficient of correlation between the returns of the stocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfolio comprising of $35,000 invested in stock A and remaining amount in stock B. Calculate risk and return of your portfolio. (d) Firm A reports a Profit Margin of 6.5% and a Total Asset Turnover Ratio of 3.25. Their total asset level is $8,500,000. Assume there are 700,000 shares outstanding and the PE ratio is 11. Also, assume the Return on Equity is 16%. Based on this, calculate…arrow_forwardThe Black-Scholes OPM is dependent on which five parameters? Select one: a. Stock price, exercise price, risk free rate, beta, and time to maturity b. Stock price, risk free rate, beta, time to maturity, and variance c. Stock price, exercise price, risk free rate, standard deviation and time to maturity d. Stock price, risk free rate, probability, standard deviation and exercise pricearrow_forward
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