Question

Risk-Return Tradeoff The return on bonds is 8%. The return on stocks have a 60% chance...

  1. Risk-Return Tradeoff The return on bonds is 8%. The return on stocks have a 60% chance of having returns of 20% and a 40% chance of returns being 0%.
    1. What is the average return of holding stock?
    2. Using S as the share of wealth in stocks, what is the average return on wealth? Calculate the average return on wealth if s = 0, s = 0.5, and s = 1.
    3. Draw the risk-return trade-off.
Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The return on stocks in a particular year was 18%. The return on bonds was 8%,...
The return on stocks in a particular year was 18%. The return on bonds was 8%, and the return on Treasury bills (risk-free rate) was 6%. The standard deviation of stock returns during the year was 22%, the standard deviation of bond returns during the year was 7%, and the standard deviation of Treasury bill returns was zero. A 50-50 portfolio combination of stocks and bonds had a return of 13% and a standard deviation of 14%. Which of the...
8-20 REALIZED RATES OF RETURN Stocks A and B have the following historical returns: Year Stock...
8-20 REALIZED RATES OF RETURN Stocks A and B have the following historical returns: Year Stock A's Returns, rA. Stock B's Returns, rB 2011 (18.00%) (14.50%) 2012 33.00 21.80 2013 15.00 30.50 2014 (0.50) (7.60) 2015 27.00 26.30 a. Calculate the average rate of return for each stock during the period 2011 though 2015. b. Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would the realized rate of return on...
Expected return on two stocks for two particular market returns:                         Market Return      
Expected return on two stocks for two particular market returns:                         Market Return         Aggressive Stock         Defensive Stock                                  5%                           0%                               6%                                30%                          40%                             20% What are the betas of the two stocks? What is the expected rate of return on each stock if the market return is equally likely to be 5% or 30%? If the T-bill rate is 4.5% and the market return is equally likely to be 5% or 30%, draw the SML for this economy....
Expected Return Standard Deviation          Stocks, S 14                          &nb
Expected Return Standard Deviation          Stocks, S 14                                           30           Bonds, B 6 15           The correlation between stocks and bonds is ρ(S,B) = 0.05 Note: I've entered the expected returns and standard deviations as whole numbers (not decimals)    Treat the risk-free rate as the number 2 not 0.02 or 2%. The risk-free rate is 2 percent. The CAL that is tangent to the portfolio frontier of stock and bonds has an expected return equal to 9.5 percent. You wish to...
Case Problem 4.2 The Risk-Return Tradeoff: Molly O’Rourke’s Stock Purchase Decision Over the past 10 years,...
Case Problem 4.2 The Risk-Return Tradeoff: Molly O’Rourke’s Stock Purchase Decision Over the past 10 years, Molly O’Rourke has slowly built a diversified portfolio of common stock. Currently her portfolio includes 20 different common stock issues and has a total market value of $82,500. Molly is at present considering the addition of 50 shares of either of two common stock issues—X or Y. To assess the return and risk of each of these issues, she has gathered dividend income and...
2. Stock prices and stand-alone risk You invest $100,000 in 40 stocks, 20 bonds, and a...
2. Stock prices and stand-alone risk You invest $100,000 in 40 stocks, 20 bonds, and a certificate of deposit (CD). What kind of risk will you primarily be exposed to? Portfolio risk Stand-alone risk Generally, investors would prefer to invest in assets that have: A high level of risk and low expected returns A low level of risk and high expected returns
CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and...
CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 8.32 % 16 % 0.8 B 10.40 16 1.3 C 12.06 16 1.7 Fund P has one-third of its funds invested in each of the three stocks. The risk-free...
Expected return on two stocks for two particular market returns: Market Return            Aggressive Stock        Defensive Stock...
Expected return on two stocks for two particular market returns: Market Return            Aggressive Stock        Defensive Stock 5%                               2%                               8% 20%                             25%                             20% What are the betas of the two stocks? What is the expected rate of return on each stock if the market return is equally likely to be 5% or 20%? If the T-bill rate is 4% and the market return is equally likely to be 5% or 20%, draw the SML for this economy. Between aggressive and defensive...
Suppose that there are only two stocks, X and Y, listed in a market. There are...
Suppose that there are only two stocks, X and Y, listed in a market. There are 200 outstanding shares of stock X and 600 outstanding shares of stock Y. Current prices per share are pX = 40$ and pY = 20$. (i) What is the market portfolio in this market? Suppose that the expected returns on stocks X and Y are μX = 10% and μY = 20%. Standard deviation of returns are σX = 15% and σY = 30%....
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 6%, and the market’s average return was 15%. Performance is measured using an index model regression on excess returns. What is the Information Ratio of each stock? Stock A Stock B Index model regression estimates 0.5% + 1.1(Rm - Rf) 0.8% + 0.9(Rm - Rf) R-square 0.594 0.445 Residual standard deviation 5.60% 9.40% Standard deviation of excess returns 16.90% 19.50%
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT