Question

1. Consider an economy with four possible economic states: Boom, Normal, Slow Growth, and Recession which have a 0.2, 0.3, 0.4, and 0.1 probability of occurring, respectively. You are considering a stock which is expected to return 12%, 9%, 4%, and 2%, respectively, in each of those states. What is the expected return on the stock?

The answer to the above is 6.9%. I need the next question answered.

2. What is the standard deviation of the above stock's return? (Assume that the expected return is 8%.)

Answer #1

Probabilty | Return | P*Return | (R -mean 8%) | (R -mean)^2 | P*(R-M)^2 |

0.2 | 12 | 2.4 | 4 | 16 | 3.2 |

0.3 | 9 | 2.7 | 1 | 1 | 0.3 |

0.4 | 4 | 1.6 | -4 | 16 | 6.4 |

0.1 | 2 | 0.2 | -6 | 36 | 3.6 |

Total | 6.9 | 13.5 |

Mean % = | Sum of( P*return) | |

6.9 | ||

Standard deviation % = | squarroot of(Sum of (P* (R-Mean)^2)) | |

SQRT of ( 13.5) | ||

3.674235 3.67% |

Note : Here in second part of the question specifically says to take the expected return as 8% hence in table R-8% has been take actually it has to be take as R- Mean that is 6.9 (calculated value) . i think students understood the concept here.

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...

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...

Asset
Boom (prob. = 0.4)
Normal Economy (prob. = 0.4)
Recession (prob. = 0.2)
Stock A
20%
8%
-8%
Stock B
8%
4%
2%
You plan to construct your portfolio based on the stock A and B.
You decide to invest 60% of your wealth in stock A and 40% of your
wealth in stock B. Please calculate the standard deviation of your
portfolio according to the probability of each scenario.

Question 1
a.
Calculate the expected return on stock of Gamma Inc.:
State of the economy
Probability of the states
Percentage returns
Economic recession
28%
-7.4%
Steady economic growth
35%
2.2%
Boom
Please calculate it
14.6%
Round the answers to two decimal places in percentage
form.
b.
Calculate the expected standard deviation on stock:
State of the economy
Probability of the states
Percentage returns
Economic recession
18%
2%
Steady economic growth
22%
8%
Boom
Please calculate it
14%

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...

1. Consider following information:
Probability of the state of economy
Rate of return if state occurs
Stock SSS
Recession
0.1
4 %
Normal
0.5
10 %
Boom
0.4
12.1 %
Calculate the expected return of a stock. Express your answer as
%.
2. Consider the same info as before:
Probability of the state of economy
Rate of return if state occurs
Stock SSS
Recession
0.1
4 %
Normal
0.5
10 %
Boom
0.4
12.1 %
Calculate the standard deviation of...

4. Assume there are three possible future states for the economy
(Boom, Stagnant, and Recession) with associated probabilities of
20%, 45%, nd 35%. For each future stae of the economy, a security
pays either $40.00 or $20.00 with equal probability (i.e., a 50%
chance of either payoff occuring).
a. What is the expected future cash flow for any given future
state of the economy?
b. What is the expected future cash flow for the security?
c. Further assuming the future...

You are considering two stocks A and B for your portfolio. Your
economic analysis suggests that there is a 25% chance of an
"economic boom", 50% chance of "normalcy" and a 25% chance of a
"recession". Given the three "States of the Economy" and the above
"probabilities", you expect that Stock A will provide a return of
20% during "economic boom", a return of 10% during "normalcy" and a
return of 0% during "recession". Stock B on the other hand...

Calculate the expected return on stock Gamma Inc.:
State of the economy Probability of the States percentage
returns
Economic recession 14% -5.2%
Steady economic growth 44% 2.2%
Boom please calculate it 10.5%
Round answer to two decimal places in percentage form

Suppose your expectations regarding the stock market are as
follows:
State of the Economy
Probability
HPR
Boom
0.3
44%
Normal growth
0.4
14
Recession
0.3
-16
Use the above forecasted distribution to compute the expected
return of the stock market. (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Another analyst has different opinions regarding the
probablities of Boom and Recession states. (She agrees with you on
all the other numbers in the table.)
You know that...

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