Question

Given the returns and probabilities for the three possible states listed here, calculate the covariance between...

Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.09 and 0.17, respectively. (Round your answer to 4 decimal places. For example .1244)

Probability

Return(A)

Return(B)

Good

0.35

0.30

0.50

OK

0.50

0.10

0.10

Poor

0.15

-0.25

-0.30
Business   Finance   
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
Given the distributions of returns for the following two stocks, calculate the covariance of the returns...
Given the distributions of returns for the following two stocks, calculate the covariance of the returns for the two stocks. Assume the expected return is 10.8 percent for Stock 1 and 9.7 percent for Stock 2. Prob Stock 1 Stock 2 0.4        0.09        0.11        0.5        0.11        0.08        0.1        0.17        0.13        0.000321 0.000094 0.000516 0.717507
The following are possible states of the economy and the returns associated with stocks A and...
The following are possible states of the economy and the returns associated with stocks A and B in those states. State Probability Return on A Return on B Good 0.3 24% 30% Normal 0.4 36% 18% Bad 0.3 48% -6% Calculate 1) covariance 2) coefficient 3) the expected return of the portfolio consisting of A & B The weight in stock A is 60%. 4) the standard deviation of a portfolio comprised of stocks A and B. The weight in...
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. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) State of Economy Probability of State of Economy Security Return if State Occurs Recession 0.35 −10.00 % Normal 0.50 7.00 Boom 0.15 17.00
There are three possible states of nature--boom, normality, and bust--with probabilities .2, .6, and .2. In...
There are three possible states of nature--boom, normality, and bust--with probabilities .2, .6, and .2. In these three states, Stock A has expected future returns of -16.8, 6.6, and 19.8 percent. Stock B has expected future returns of -16.5, 9.9, and 16.7 percent. What is the expected return on a portfolio invested half in Stock A and half in Stock B in percent?
An analyst has predicted the following returns for Stock A and Stock B in three possible...
An analyst has predicted the following returns for Stock A and Stock B in three possible states of the economy. State Probability A B Boom 0.23 0.22 0.22 Normal 0.40 0.19 0.16 Recession ? 0.17 0.10 a. What is the probability of a recession? (Round your answer to 2 decimal places.) b. Calculate the expected return for Stock A and Stock B. (Round your answers to 2 decimal places.) c. Calculate the expected return for a portfolio that is invested...
An analyst has predicted the following returns for Stock A and Stock B in three possible...
An analyst has predicted the following returns for Stock A and Stock B in three possible states of the economy. State Probability A B Boom 0.21 0.24 0.30 Normal 0.53 0.21 0.23 Recession ? 0.15 0.19 What is the probability of a recession? (Round your answer to 2 decimal places.) . Calculate the expected return for Stock A and Stock B. (Round your answers to 2 decimal places.) c. Calculate the expected return for a portfolio that is invested 49%...
Based on your research, the following states of economy, probabilities of states, and returns are forecasted...
Based on your research, the following states of economy, probabilities of states, and returns are forecasted for Stock A and Stock B:Return if State Occurs State of Economy Probability of state Stock A Stock B Recession 0.65-0.15-0.2 Normal 0.30.130.14 Irrational exuberance 0.050.20.29 a.What is the expected return on Stock A? b.What is the expected return on Stock B? c.Your research also indicates that stock A’s beta is greater than stock B’s beta by 0.5. calculate the expected market risk premium...
Based on your research, the following states of economy, probabilities of states, and returns are forecasted...
Based on your research, the following states of economy, probabilities of states, and returns are forecasted for Stock A and Stock B: Return if State Occurs State of Economy Probability of state Stock A Stock B Recession 0.65 -0.15 -0.2 Normal 0.3 0.13 0.14 Irrational exuberance 0.05 0.2 0.29 a. What is the expected return on Stock A? b. What is the expected return on Stock B? c. Your research also indicates that stock A’s beta is greater than stock...
Based on your research, the following states of economy, probabilities of states, and returns are forecasted...
Based on your research, the following states of economy, probabilities of states, and returns are forecasted for Stock A and Stock B: Return if State Occurs State of Economy Probability of state Stock A Stock B Recession 0.65 -0.15 -0.2 Normal 0.3 0.13 0.14 Irrational exuberance 0.05 0.2 0.29 a. What is the expected return on Stock A? b. What is the expected return on Stock B? c. Your research also indicates that stock A’s beta is greater than stock...
Suppose there are three economic states next year, with probabilities 0.3, 0.55 and 0.15, respectively. The...
Suppose there are three economic states next year, with probabilities 0.3, 0.55 and 0.15, respectively. The state prices for the three states are given by (?1,?2,?3)=(0.6,0.2,0.1) The payoff of a riskless bond in one year is 100 in all three states, that is, [$100, $100, $100]. The payoff of a share of stock in one year is [$85,$100,$110]. (a) What is the bond price today? (b) What is the stock price today? (c) What is the expected return of the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT