Question

Problem 5

Intro

The following table shows rates of return for two stocks.

A | B | C | |

1 | Year | Stock A | Stock B |

2 | 1 | 14% | 13% |

3 | 2 | -10% | -14% |

4 | 3 | -6% | -4% |

5 | 4 | 5% | 28% |

6 | 5 | 14% | 8% |

7 | 6 | 5% | 7% |

Attempt 1/3 for 10 pts.

Part 1

What is the arithmetic average return for stock B?

Submit

Attempt 1/3 for 10 pts.

Part 2

What is the covariance of returns? (Use =COVARINACE.S function in Excel)

Submit

Answer #1

Year | B |

1 | 14.00% |

2 | -10.00% |

3 | -6.00% |

4 | 5.00% |

5 | 14.00% |

6 | 5.00% |

Average= | 3.67% |

Where | ||||

Average or Mean = Sum of all observations/Count of all observations |

Year | B | C | A = B observation - B average | A = C observation - C average | A*B |

1 | 14.00% | 13.00% | 10.33% | -1.00% | -0.10% |

2 | -10.00% | -14.00% | -13.67% | -28.00% | 3.83% |

3 | -6.00% | -4.00% | -9.67% | -18.00% | 1.74% |

4 | 5.00% | 28.00% | 1.33% | 14.00% | 0.19% |

5 | 14.00% | 8.00% | 10.33% | -6.00% | -0.62% |

6 | 5.00% | 7.00% | 1.33% | -7.00% | -0.09% |

Average= | 3.67% | 6.33% | Covariance= | Sum of all A*Bs = | 4.94% |

1. The following table shows rates of return for two stocks.
A
B
C
1
Year
Stock A
Stock B
2
1
14%
13%
3
2
-15%
-14%
4
3
-6%
-9%
5
4
5%
28%
6
5
14%
8%
7
6
15%
7%
a. What is the arithmetic average return for stock B?
b. What is the variance for stock B?
c. What is the covariance of returns?
2. The following table shows realized rates of return for two...

Intro
You've estimated the following cash flows (in $) for two
mutually exclusive projects:
Year
Project A
Project B
0
-5,500
-8,250
1
1,325
1,325
2
2,148
2,148
3
4,010
7,918
The required return for both projects is 8%.
Attempt 1/10 for 10 pts.
Part 1
What is the IRR for project A?
Submit
Attempt 1/10 for 10 pts.
Part 2
What is the IRR for project B?
Submit
Attempt 1/5 for 10 pts.
Part 3
Which project seems better...

Intro
You've estimated the following cash flows (in $) for a
project:
A B
1 Year Cash flow
2 0 -3,200
3 1 974
4 2 1,281
5 3 1,647
The required return is 8.5%.
Attempt 1/1 for 10 pts.
Part 1
What is the IRR for the project?
Submit
Attempt 1/1 for 10 pts.
Part 2
What is the NPV of the project?
Submit
Attempt 1/1 for 10 pts.
Part 3
What should you do?
Check all that apply:...

Intro
You want to invest in either a stock or Treasury bills (the
risk-free asset). The stock has an expected return of 6% and a
standard deviation of returns of 34%. T-bills have a return of
2%.
Attempt 1/1 for 10 pts.
Part 1
If you invest 70% in the stock and 30% in T-bills, what is your
expected return for the complete portfolio?
Move on
Attempt 1/1 for 10 pts.
Part 2
What is the standard deviation of returns...

The table below shows the expected rates of return for three
stocks and their weights in some portfolio:
Stock A
Stock B
Stock C
Portfolio weights
0.3
0.2
0.5
State
Probability
Expected returns
Recession
0.2
0.08
0.03
0.14
Boom
0.8
0.13
0.05
0.15
1. What is the portfolio return during a recession?
2. What is the expected portfolio return?
3. What is the standard deviation of the portfolio returns?

1. Calculate the rates of return (holding period returns) for
the following stocks:
Stock
Beginning price: P0
Ending price: P1
Dividend payment: D1
A
21.38
16.06
2.6
B
108.74
118.92
5.25
C
4.25
5.58
0.19
Part 1
What was the rate of return for stock A?
Part 2
What was the rate of return for stock B?
Part 3
What was the rate of return for stock C?
2. You bought Samsung stock for $45 on April 1. The stock...

Consider the following probability distribution for stocks A and
B:
State
Probability
Return on Stock A
Return on Stock B
1
0.10
10%
8%
2
0.20
13%
7%
3
0.20
12%
6%
4
0.30
14%
9%
5
0.20
15%
8%
The coefficient of correlation between A and B is
(Hint: compute variance and covariance first.)
Group of answer choices
0.47.
none of the above.
0.60.
0.58
1.20.

The table below shows annual returns for stocks of companies X
and Y. Calculate the arithmetic average returns. In addition,
calculate their variances, as well as their standard
deviations.
Returns
Year
X
Y
1
7 %
22 %
2
25
43
3
14
-9
4
-15
-23
5
16
51
Requirement 1:
(a)
The arithmetic average return of company X's stock is:
(Click to
select) 7.61% 10.62% 9.40% 11.75% 11.47%
(b)
The...

5. Consider the rate of return of stocks ABC and XYZ.
Year
rABC
rXYZ
1
20%
30%
2
12
12
3
14
18
4
3
0
5
1
−10
a. Calculate the arithmetic average return on these stocks over
the sample period.
b. Which stock has greater dispersion around the mean
return?
c. Calculate the geometric average returns of each stock. What
do you conclude?
d. If you...

The table below shows daily returns on XYZ and Market.
Return of XYZ
Return of Market
Monday
5%
-4%
Tuesday
-3%
3%
Wednesday
6%
10%
Thursday
-10%
-5%
Friday
8%
7%
Find Expected returns of XYZ and Market.
What is the covariance of XYZ and the Market?
Find the Beta of XYZ.

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