Question

Market Portfolio Stock A Boom 25% 20% Recession -10% -8% Above is the returns of the...

Market Portfolio

Stock A
Boom 25% 20%
Recession -10% -8%

Above is the returns of the market portfolio and stock A in the 2 possible scenarios. The probability of the boom scenario and the recession scenario are both 50%. Please estimate the beta coefficient for stock A.


Continuing the previous question. The risk-free interest rate is 1%. According to the beta you estimated in the last question, what is the expected return for stock A according to CAPM?

Hint: use the probability weighted average market return for CAPM.

Homework Answers

Answer #1

ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE. THUMBS UP PLEASE.

Beta= 0.80

Expected Return= 6.20%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Below is the returns of the market portfolio and stock A in the 2 possible scenarios....
Below is the returns of the market portfolio and stock A in the 2 possible scenarios. The probability of the boom scenario and the recession scenario are both 50%. Please estimate the beta coefficient for stock A. (Show all work) Market Portfolio Stock A Boom 25% 20% Recession -10% -8% Continuing the previous question. The risk-free interest rate is 2%. According to the beta you estimated in the last question, what is the expected return for stock A according to...
If the economy enters a boom, the stock of Company E will return 20% and the...
If the economy enters a boom, the stock of Company E will return 20% and the stock of Company F will return 40%. On the other hand, if the economy enters a recession, the stock of Company E will return -10% and the stock of Company F will return -25%. The boom state is one-and-one-half times as likely as the recession state. The risk-free rate in the market is 2%, while the risk premium of the market portfolio is 6%....
We know the following expected returns for stock A and the market portfolio, given different states...
We know the following expected returns for stock A and the market portfolio, given different states of the economy: State (s) Probability E(rA,s) E(rM,s) Recession 0.2 -0.02 0.02 Normal 0.5 0.13 0.05 Expansion 0.3 0.21 0.09 The risk-free rate is 0.02. Assuming the CAPM holds, what is the beta for stock A?
Suppose that the market portfolio has an expected return of 10%, and a standard deviation of...
Suppose that the market portfolio has an expected return of 10%, and a standard deviation of returns of 20%. The risk-free rate is 5%. b) Suppose that stock A has a beta of 0.5 and an expected return of 3%. We would like to evaluate, according to the CAPM, whether this stock is overpriced or underpriced. First, construct a tracking portfolio, made using weight K on the market portfolio and 1 − K on the risk-free rate, which has the...
14. Expected Returns. Consider the following two scenarios for the economy and the expected returns in...
14. Expected Returns. Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. Rate of Return Scenario Market Aggressive Stock A Defensive Stock D Bust -8% -10% -6% Boom 32 38 24 Find the beta of each stock. In what way is stock D defensive? If each scenario is equally likely, find the expected rate of return on the market portfolio and...
Portfolio Returns. Suppose TinyChip has a beta of 1.6, whereas Bigwing stock has a beta of...
Portfolio Returns. Suppose TinyChip has a beta of 1.6, whereas Bigwing stock has a beta of .8. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10% according to CAPM. What is the expected return of TinyChip stock? (3 points) What is the expected return of Bigwing stock? (3 points) What is the beta of a portfolio of 60% TinyChip and 40% Bigwing stock? (4 points) What is the expected return of a...
Last year your portfolio made 15%; the stock market made 10%, and the risk free rate...
Last year your portfolio made 15%; the stock market made 10%, and the risk free rate was 2%. If the CAPM is correct, what must the beta of your portfolio be?
Financial analysts have estimated the returns on shares of Drucker Corporation and the overall market portfolio...
Financial analysts have estimated the returns on shares of Drucker Corporation and the overall market portfolio under various economic conditions as follows. The return for Drucker in the following three economic states of nature are forecasted to be: -16% in recession, +8% in moderate growth, and +36% in a boom. Estimates for the market as a whole in the same economic states are -10% in recession, +10% in moderate growth, and +23% in boom. The analyst considers each state to...
Consider the following two scenarios for the economy and the expected returns in each scenario for...
Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. Rate of Return Scenario Market Aggressive Stock A Defensive Stock D Bust –5 % –7 % –3 % Boom 27 35 19 Required: a. Find the beta of each stock. b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. c....
You are provided some data about the market: The expected return of the market portfolio is...
You are provided some data about the market: The expected return of the market portfolio is 11.8%, the market's volatility is 13.9%, and the risk-free rate is 2.9%. If the beta of Johnson & Johnson (JNJ) is 0.83, according to the CAPM, what is the expected return of JNJ? {Give your answer as a percentage with 2 decimals, e.g., if the answer is 0.0345224 (or 3.45224%) , enter 3.45 as your answer.} Hint: basic CAPM question. See conclusion 4 of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT