Question

A stock will provide a rate of return of either −29% or 32%. |

a. |
If both possibilities are equally likely, calculate the stock's
expected return and standard deviation. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 1 decimal place.) |

Expected return | % |

Standard deviation | % |

b. |
If Treasury bills yield 1.5% and investors believe that the
stock offers a satisfactory expected return, what must the market
risk of the stock be? |

Market risk | % |

Answer #1

Given:

Rate of return = -29% or 32% with equal probability

Expected rate of return = 0.5 * -29% + 0.5 * 32%

Expected rate of return = -0.1450 + 0.160

Expected rate of return = 0.0150

**Expected rate of return = 1.5%**

Standard deviation

Variance of the stock = weight1 * (return1 - expected rate of
return)^{2} + weight2 * ( return2 - expected rate of
return)^{2}

Variance of the stock = 0.5 * ( -29% - 1.50%)^{2} + 0.5
* ( 32% - 1.50%)^{2}

Variance of the stock = 0.5 * 0.093025 + 0.5 * 0.093025

Variance of the stock = 0.046513 + 0.046513

Variance of the stock = 0.093025

Standard deviation = sqrt( variance)

Standard deviation = sqrt ( 0.093025)

**Standard deviation = 30.5%**

b) Given T yield Rf= 1.5%

Expected return = 1.5%

market risk of the stock = Rms

E(R) = Rf + Rms

1.5% - 1.5% = Rms

**Market risk = 0%**

A stock will
provide a rate of return of either ?28% or 33%.
a.
If both
possibilities are equally likely, calculate the stock's expected
return and standard deviation. (Do not round intermediate
calculations. Enter your answers as a percent rounded to 1 decimal
place.)
Expected return
%
Standard deviation
%
b.
If Treasury bills
yield 2.5% and investors believe that the stock offers a
satisfactory expected return, what must the market risk of the
stock be? (Enter your answer as...

A stock will provide a rate of return of either ?28% or 33%.
a. If both possibilities are equally likely, calculate the
stock's expected return and standard deviation. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 1 decimal place.)
Expected return %
Standard deviation %
b. If Treasury bills yield 2.5% and investors believe that the
stock offers a satisfactory expected return, what must the market
risk of the stock be? (Enter your answer as...

A stock will provide a rate of return of either ?29% or 34%.
If both possibilities are equally likely, calculate the stock's
expected return and standard deviation. (Do not round
intermediate calculations. Enter your answers as a whole
percent.)
Expected Return
????
%
Standard Deviation
????
%

A stock will provide a rate of return of either ?28% or 30%.
If both possibilities are equally likely, calculate the stock's
expected return and standard deviation. (Do not round
intermediate calculations. Enter your answers as a whole
percent.)
Expected return% ___________
Standard deviation% ___________

The Treasury bill rate is 3.3%, and the expected return on the
market portfolio is 10.3%. Use the capital asset pricing model.
a. What is the risk premium on the market?
(Do not round intermediate calculations. Enter your answer
as a percent rounded to 1 decimal place.)
Risk premium
%
b. What is the required return on an investment
with a beta of 1.7? (Do not round intermediate
calculations. Enter your answer as a percent rounded to 2 decimal
places.)...

The Treasury bill rate is 3.9%, and the expected return on the
market portfolio is 11.8%. Use the capital asset pricing model.
a. What is the risk premium on the market?
(Do not round intermediate calculations. Enter your answer
as a percent rounded to 1 decimal place.)
Risk premium
%
b. What is the required return on an investment
with a beta of 1.4? (Do not round intermediate
calculations. Enter your answer as a percent rounded to 2 decimal
places.)...

Suppose that the expected return and standard deviation of the
market are 10 percent and 16 percent, respectively. Stock A has a
standard deviation of 45 percent and a correlation with the market
of 0.64. What would the expected return of a portfolio that is
equally split between stock A, the market and a risk-free Treasury
bill be if the risk-rate is 4%?

Suppose the risk-free interest rate is 5%, and the stock market
will return either 40% or −20% each year, with each outcome equally
likely. Compare the following two investment strategies: (1) invest
for one year in the risk-free investment, and one year in the
market, or (2) invest for both years in the market.
compute the standard deviation for each case B (1) and B (2) and
depict all steps in the calculation, that I described.

Intro
You want to invest in either a stock or Treasury bills (the
risk-free asset). The stock has an expected return of 6% and a
standard deviation of returns of 34%. T-bills have a return of
2%.
Attempt 1/1 for 10 pts.
Part 1
If you invest 70% in the stock and 30% in T-bills, what is your
expected return for the complete portfolio?
Move on
Attempt 1/1 for 10 pts.
Part 2
What is the standard deviation of returns...

The following are estimates for two stocks.
Stock
Expected Return
Beta
Firm-Specific Standard Deviation
A
11
%
0.90
32
%
B
16
1.40
40
The market index has a standard deviation of 19% and the
risk-free rate is 11%.
a. What are the standard deviations of stocks
A and B?
b. Suppose that we were to construct a
portfolio with proportions:
Stock A
0.40
Stock B
0.40
T-bills
0.20
Compute the expected return, standard deviation, beta, and
nonsystematic standard deviation...

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