Question

Stock A pays 30% in a boom, 10% in a normal economy, and -30% in a...

Stock A pays 30% in a boom, 10% in a normal economy, and -30% in a recession.  Stock B pays -15% in a boom, 0% in a normal economy, and 20% in a recession. If all three states of the economy are equally likely next year, what is the one-year expected return on a portfolio that is 70% stock A and 30% stock B? Enter your answer as a percentage point without the % sign, and round it to the second decimal point (i.e., if the answer is 10.3456%, enter it as 10.34).

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

STOCK A

Economy Probability Stock A returns Prob*Stock A returns
Boom 0.33 30.00% 10.00%
Normal 0.33 10.00% 3.33%
Recession 0.33 -30.00% -10.00%
1.00 Expected Return 3.33%

STOCK B

Economy Probability Stock A returns Prob*Stock A returns
Boom 0.33 -15.00% -5.00%
Normal 0.33 0.00% 0.00%
Recession 0.33 20.00% 6.67%
1.00 Expected Return 1.67%

One year expected return on the portfolio

Weights Returns Weights*Returns
Stock A 0.7 3.33% 2.33%
Stock B 0.3 1.67% 0.50%
Portfolio Return 2.83%
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
Stock A pays 30% in a boom, 5% in a normal economy and -30% in a...
Stock A pays 30% in a boom, 5% in a normal economy and -30% in a recession. If we are equally likely to see a boom, a normal economy and a recession next year, what is the standard deviation of the one-year return on stock A? Enter your result as a percentage point without the % sign, and round it to the second decimal point (i.e., if the answer is 10.3456%, enter it as 10.35).
Question 1 A) If the economy is normal, Stock A is expected to return 10.50%. If...
Question 1 A) If the economy is normal, Stock A is expected to return 10.50%. If the economy falls into a recession, the stock's return is projected at a negative 14%. If the economy is in a boom the stock has a projected return of 16.9% The probability of a normal economy is 60% while the probability of a recession is 20% and boom is 20%. What is the expected return of this stock? Answer as % and to first...
The probability the economy will boom is 10 percent while the probability of a recession is...
The probability the economy will boom is 10 percent while the probability of a recession is 20 percent. Stock A is expected to return 15 percent in a boom, 9 percent in a normal economy, and lose 14 percent in a recession. Stock B should return 10 percent in a boom, 6 percent in a normal economy, and 2 percent in a recession. Stock C is expected to return 5 percent in a boom, 7 percent in a normal economy,...
A. Use the following information on states of the economy and stock returns to calculate the...
A. Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)   State of   Economy Probability of State of Economy Security Return If State Occurs   Recession .40 –5.50 %   Normal .40 11.00   Boom .20 17.00 B. Use the following information on states of the economy and stock returns...
Use the following information on states of the economy and stock returns to calculate the standard...
Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. Assume that all three states are equally likely. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) State of Economy Security Return if State Occurs Recession −7.00 % Normal 9.00 Boom 21.00
Suppose an economy has three states: boom, normal, and recession. Assume that the probability of a...
Suppose an economy has three states: boom, normal, and recession. Assume that the probability of a boom state is 0.2, a normal state is 0.5, and a recession state is 0.3. And there are three stocks in this economy, called Alpha, Beta, and Gamma respectively. The return performance of these stocks has been summarized by the following table: Alpha Beta Gamma boom 15% 28% 1% normal 6% 12% 3% recession -12% -30% 20% (Please show your intermediate processes, instead of...
There is a 15 percent probability the economy will boom; otherwise, it will be normal. Stock...
There is a 15 percent probability the economy will boom; otherwise, it will be normal. Stock G should return 15 percent in a boom and 8 percent in a normal economy. Stock H should return 9 percent in a boom and 6 percent otherwise. What is the variance of a portfolio consisting of $3,500 in Stock G and $6,500 in Stock H?
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%....
Leftover stock is expected to return 26 percent in a boom, 4 percentin a normal economy,...
Leftover stock is expected to return 26 percent in a boom, 4 percentin a normal economy, and lose 25 percent in a recession. The probabilities of a boom, normal economy, and a recession are 2 percent, 93 percent, and 5 percent, respectively. What is the expected return on this stock? a.3.99 percent b. 2.99 percent c. 1.99 percent d.0.99percent What is the variance on this stock? a. 0.005071 b. 0.004927 c.0.003896 d.0.005001 What is the standard deviation of the returns...
. Stock S is expected to return 12 percent in a boom and 6 percent in...
. Stock S is expected to return 12 percent in a boom and 6 percent in a normal economy. Stock T is expected to return 20 percent in a boom and 4 percent in a normal economy. There is a probability of 40 percent that the economy will boom; otherwise, it will be normal. What is the portfolio variance and standard deviation if 30 percent of the portfolio is invested in Stock S and 70 percent is invested in Stock...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT