he colleague has given you his forecasts of stocks W and E as follows: State Probability Expected rate of Returns on Stock W Expected rate of Returns on Stock E Boom 0.7 0.40 -0.10 Bust 0.3 -0.05 0.30 She would like to invest 80% of his money in stock W and 20% of her money in stock E to construct a portfolio. (B) Calculate the portfolio's expected rate of returns and its standard deviation
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-Show the formula step by step-
The colleague has given you his
State | Probability | Expected Returns |
Expected rate of Returns on Stock E |
Boom | 0.7 | 0.40 | -0.10 |
Bust | 0.3 | -0.05 | 0.30 |
She would like to invest 80% of his money in stock W and 20% of her money in stock E to construct a portfolio.
(B) Calculate the portfolio's expected rate of returns and its standard deviation
Step by step
Solved in 3 steps
- A close family friend has approached you to help her determine which of the two common stocks she should invest in Common Stock A Common Stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.6 19% 0.25 14% 0.25 22% Required: Calculate the expected returns of stock A Determine the risk (standard deviation) and return of stock A Calculate the expected returns of stock B Determine the risk (standard deviation) and return of stock B Which investment should your friend invest in? Jenny has decided that she will invest her $100,000 savings in stocks as follows: What rate of return should Jenny expects to receive on her portfolio? Company Percentage of Investment Expected rate of return Standards Company Limited 45% 9% Starbucks 15% 12% Treasury Bill 40% 4%A close family friend has approached you to help her determine which of the two common stocks she should invest in. Common Stock A Common stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.6 19% 0.25 14% 0.25 22% Required: Calculate the expected returns of stock A Determine the risk (standard deviation) and return of stock A Calculate the expected returns of stock B Determine the risk (standard deviation) and return of stock B Which investment should your friend invest in?PLZ Show the formula step by step-The colleague has given you his forecasts of stocks A and B as follows: State Probability Expected rate ofReturns on Stock A Expected rate ofReturns on Stock B Boom 0.7 0.40 -0.10 Bust 0.3 -0.05 0.30 She would like to invest 80% of his money in stock A and 20% of her money in stock B to construct a portfolio.A) Calculate the portfolio's expected rate of returns and its standard deviation.
- An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?Your client is considering purchasing stocks. The actual return of one o his choices follows here. Assist him by calculating the standard deviation and advise him what the risk is. Stock 'A' Actual Returns = 6%, 12%, 8%, 10% 0.0164 0.0258 0.0542 0.1072A. Mubita is contemplating on investing in Stocks A and B with the following probability distributions of possible future returns: Probability (Pi ). 0.1, 0.2, 0.4, 0.2, 0.1 Stock A (%) 15, 0, 5, 10, 25 Stock B (%) 20, 10, 20, 30,50 Calculate the expected rate of return for each stock. Assuming the Capital Asset Pricing Model (CAPM) holds and stock B’s beta is greater than stock A’s beta by 0.27, what is the excess return on the market portfolio?
- You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (c) below. Probability 0.1 0.2 0.4 0.3 a. Compute the expected return for stock X and for stock Y. The expected return for stock X is (Type an integer or a decimal. Do not round.) Economic Condition Recession Slow growth Moderate growth Fast growth Returns Stock X Stock Y - 40 30 80 150 - 110 40 140 210You are trying to decide whether to invest in one or both of two different stocks. The marketrisk premium and risk-free rate are 6 percent and 4 percent respectively.Beta Expected Return(%)Stock 1 beta 0.8 % expected return7.0Stock 2 beta 1.2 %expected return 9.5Use your knowledge of the CAPM and the SML which and determinewhether you should invest in either, one, or both of these stocks. Provide all workingsFollowing are the probability distribution of returns of portfolio of Stock A and Stock B in equal proportion of weight in each state of economy. You are required to calculate Expected Return and Risk for individual Stocks? State of Economy 1 2 3 4 5 Probability 0.2 0.2 0.2 0.2 0.2 Return on Stock A (%) 15 (5) 5 35 25 Return on Stock B (%) (5) 15 25 5 35 If you deposit Rs. 1,000 in the bank at a nominal interest rate of 6 percent, you will have Rs. 1,060 at the end of the year. Suppose that the inflation rate during the year is also 6 percent. Find real amount in Peso?
- (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.) Common Stock B Return 13% 14% 18% Return - 6% 7% 15% 21% a. Given the information in the table, the expected rate of return for stock A is 14.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.)(Expected rate of return and risk) Syntex, Inc is considering an investment in one of two common stocks Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and retum? Common Stock A Probability 0.25 0,50 0:25 Common Stock B Return 10% 17% 10% Probability 0.10 0:40 0:40 010 (Click on the soon in order to copy its contents into a spreadsheet) Return -6% 8% 15% 20% COD a. Given the information in the table the expected rate of return for stock A is 15.5% (Round to two decimal places) The standard deviation of stock A is 4 36% (Round to two decimal places)Assume you have formed a portfolio of stocks by investing $200 in stock X, $300 in stock Y, and $500 in stock Z. If the Beta for stock X, Y, and Z are -1 , 0.3 , and -1.8 respectively. What will be your portfolio Beta? (Round your answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)