Question

Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession 0.20 0.04 -0.23 Normal 0.70 0.08 0.14 Boom 0.10 0.14 0.35 Required: (a) Calculate the expected return for Stock A. (Do not round your intermediate calculations.) (b) Calculate the expected return for Stock B. (Do not round your intermediate calculations.) (c) Calculate the standard deviation for Stock A. (Do not round your intermediate calculations.) (d) Calculate the standard deviation for Stock B. (D

Answer #1

a). E(rA) = [Pi x Ri]

= [0.20 x 0.04] + [0.70 x 0.08] + [0.10 x 0.14] = 0.008 + 0.056 + 0.014 = 0.078, or 7.80%

b). E(rB) = [Pi x Ri]

= [0.20 x -0.23] + [0.70 x 0.14] + [0.10 x 0.35] = -0.046 + 0.098 + 0.035 = 0.087, or 8.70%

c). A = [{Pi
x (E(r) - Ri)^{2}}]^{1/2}

= [{0.20 x (0.078 - 0.04))^{2}} + [{0.70 x (0.078 -
0.08)^{2}} + [{0.10 x (0.078 -
0.14)^{2}}]^{1/2}

= [0.0003 +0.000003+ 0.0004]^{1/2} =
[0.0007]^{1/2} = 0.0260, or 2.60%

d). B = [{Pi
x (E(r) - Ri)^{2}}]^{1/2}

= [{0.20 x (0.087 - (-0.23))^{2}} + [{0.70 x (0.087 -
0.14)^{2}} + [{0.10 x (0.087 -
0.35)^{2}}]^{1/2}

= [0.0201 + 0.0020 + 0.0069]^{1/2} =
[0.0290]^{1/2} = 0.1702, or 17.02%

Consider the following information: Rate of Return if State
Occurs State of Economy Probability of State of Economy Stock A
Stock B Recession 0.20 0.02 -0.17 Normal 0.60 0.08 0.12 Boom 0.20
0.16 0.35 Required: Given that the expected return for Stock A is
8.400%, calculate the standard deviation for Stock A. (Do not round
your intermediate calculations.)

Consider the following information:
Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Recession
0.20
0.06
-0.23
Normal
0.60
0.08
0.13
Boom
0.20
0.14
0.34
Required:
(a)
Calculate the expected return for Stock A. (Do not round
your intermediate calculations.)
(Click to select)8.80%8.85%10.49%11.03%7.90%
(b)
Calculate the expected return for Stock B. (Do not round
your intermediate calculations.)
(Click to select)10.00%8.00%11.50%9.50%10.40%
(c)
Calculate the standard deviation for Stock...

Consider the following information:
Rate of Return if State Occurs
State of
Economy
Probability of
State of Economy
Stock A
Stock B
Recession
0.20
0.05
-0.21
Normal
0.70
0.07
0.14
Boom
0.10
0.13
0.31
Required:
(a)
Calculate the expected return for Stock A. (Do not round
your intermediate calculations.)
7.20% 7.85% 8.81% 10.03%
6.24%
(b)
Calculate the expected return for Stock B. (Do not round
your intermediate calculations.)
8.70% 8.00% 10.14% 8.27%
9.05%
(c)
Calculate the...

Consider the following information:
Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Recession
0.10
0.06
-0.18
Normal
0.60
0.08
0.16
Boom
0.30
0.16
0.35
Required:
Given that the expected return for Stock A is 10.200%, calculate
the standard deviation for Stock A. (Do not round your
intermediate calculations.)

Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Recession
0.20
0.03
-0.19
Normal
0.60
0.08
0.14
Boom
0.20
0.15
0.35
Required:
(a)
Calculate the expected return for Stock A. (Do not round
your intermediate calculations.)
8.40%
8.19%
10.07%
10.37%
7.49%
(b)
Calculate the expected return for Stock B. (Do not round
your intermediate calculations.)
11.60%
10.00%
13.18%
11.02%
12.06%
(c)
Calculate the standard deviation for Stock...

Consider the following information:
Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Recession
0.10
0.03
-0.21
Normal
0.60
0.08
0.15
Boom
0.30
0.13
0.32
Required:
(a)
Calculate the expected return for Stock A. (Do not round
your intermediate calculations.)
(b)
Calculate the expected return for Stock B. (Do not round
your intermediate calculations.)
(c)
Calculate the standard deviation for Stock A. (Do not
round your intermediate...

Consider the following information:
Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Recession
0.10
0.04
-0.20
Normal
0.50
0.07
0.12
Boom
0.40
0.15
0.31
Required:
(a)
Calculate the expected return for Stock A. (Do not round
your intermediate calculations.)
(Click to select)9.90%8.19%11.64%10.37%9.05%
(b)
Calculate the expected return for Stock B. (Do not round
your intermediate calculations.)
(Click to select)16.40%7.67%18.22%15.58%17.06%
(c)
Calculate the standard deviation for Stock...

Consider the following information:
Rate of Return if State Occurs
State of
Economy
Probability of
State of Economy
Stock A
Stock B
Recession
0.10
0.06
-0.19
Normal
0.70
0.09
0.15
Boom
0.20
0.15
0.32
Required:
(a)
Calculate the expected return for Stock A. (Do not round
your intermediate calculations.)
A. 9.90%
B. 9.52%
C. 11.65%
D. 11.70%
E. 9.05%
(b)
Calculate the expected return for Stock B. (Do not round
your intermediate calculations.)
A. 15.00%
B. 9.33%...

Consider the following information: Rate of Return if State
Occurs State of Economy Probability of State of Economy Stock A
Stock B Stock C Boom 0.20 0.19 0.38 0.28 Good 0.25 0.16 0.23 0.10
Poor 0.10 0.00 –0.09 –0.05 Bust 0.45 –0.08 –0.22 –0.10
a. Your portfolio is invested 25 percent each in A and C and 50
percent in B. What is the expected return of the portfolio? (Do not
round intermediate calculations. Enter your answer as a percent...

Consider the following information: Rate of Return if State
Occurs State of Economy Probability of State of Economy Stock A
Stock B Recession 0.10 0.03 -0.22 Normal 0.60 0.07 0.11 Boom 0.30
0.12 0.34 Required: (a) Calculate the expected return for Stock A.
(Do not round your intermediate calculations.) (b) Calculate the
expected return for Stock B. (Do not round your intermediate
calculations.) (c) Calculate the standard deviation for Stock A.
(Do not round your intermediate calculations.) (d) Calculate the...

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