Scenario Probability Severe recession Mild recession 0.05 Stock Fund Rate of Return -41% Bond Fund Rate of Return -18% 0.20 Normal growth Boom Required: 0.30 0.45 -11.0% 8% 34% 14% 5% 6% a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.) Mean return Variance % %-Squared b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.) Covariance %-Squared

Scenario Probability Severe recession Mild recession 0.05 Stock Fund Rate of Return -41% Bond Fund Rate of Return -18% 0.20 Normal growth Boom Required: 0.30 0.45 -11.0% 8% 34% 14% 5% 6% a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.) Mean return Variance % %-Squared b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.) Covariance %-Squared

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Scenario Probability Stock fund Rate of Return Bond fund Rate of Return Severe recession 0.05 -30 -11 Mild recession 0.25 -15 13 Normal Growth 0.40 15 12 Boom 0.30 32 -7 Calculate the mean return and variance for both the stock and bond funds.
Consider the following table: Scenario Severe recession Mild recession Normal growth Boom Probability 0.05 0.25 0.40 0.30 Stock Fund Rate of Return -32% -12% 17% 22% Bond Fund Rate of Return -11% 17% 10% -7% a. Calculate the values of mean return (or called expected return) and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) (Hint: Recall the formula on Page 29 (Example: Volatility of a Two-Stock Portfolio) of Slides of Lecture 2a) b. Calculate the value of the covariance between the stock and bond funds. (Negative
Consider the following table: Scenario Probability Stock FundRate of Return Bond FundRate of Return Severe recession 0.10 −38% −14% Mild recession 0.20 −6.0% 10% Normal growth 0.35 10% 4% Boom 0.35 40% 4% Required: a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.) b. Calculate the value of the covariance between the stock and bond funds
Consider the following table: Scenario Probability Stock FundRate of Return Bond FundRate of Return Severe recession 0.10 −43% −12% Mild recession 0.20 −17.0% 12% Normal growth 0.30 17% 6% Boom 0.40 31% 4% Required: a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.) b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.)
Consider the following table: Scenario Probability Stock Fund Rate of Return Bond Fund Rate of Return Severe recession 0.05-33%-12% Mild recession 0.25 -13% 18% Normal growth 0.40 18% 11% Boom 0.30 23%-8% Required: a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return Severe recession 0.05 –27 % –12 % Mild recession 0.25 –7 % 18 % Normal growth 0.40 12 % 11 % Boom 0.30 17 % –8 % a.Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) mean return: variance: b.Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)vovariance:
Scenario Probability Stock fund Rate of Return Bond fund Rate of Return Severe recession 0.05 -30 -11 Mild recession 0.25 -15 13 Normal Growth 0.40 15 12 Boom 0.30 32 -7 Calculate the covariance and correlation coefficient of the two funds.
Consider the performance of a stock fund and a bond fund, based on the state of the economy. State of Economy Probability Stock Fund: Rate of Return Bond Fund: Rate of Return Boom 0.2500 0.4500 0.0500 Normal Growth 0.4500 0.1300 0.0700 Recession 0.2750 -0.1500 0.0750 Severe Recession 0.0250 -0.4000 -0.0500 Measurement Stock Fund Bond Fund Mean 11.98% 6.34% Variance 0.0541 0.0004 Standard Deviation 23.25% 2.06% Covariance (Stock and Bond Funds) -0.05% Correlation -9.68% Required: Using the information in the table above and the weights below, calculate the mean, variance, and standard deviation of a combined portfolio. Stock Fund 70% Bond Fund 30% (Use cells A5 to D21 from the given information to complete this question.) Portfolio Performance Mean Variance Standard…
Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return Severe recession 0.05 –28 % –13 % Mild recession 0.25 –8 % 19 % Normal growth 0.40 13 % 12 % Boom 0.30 18 % –9 % a.Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) b.Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider the following: Rate of Return Scenario Probability Stocks Bonds Recession .30 -8% 21% Normal Economy .50 22% 9% Boom .20 32% 9% a). Calculate the expected rate of return and standard deviation for each investment. (Don't round intermediate calculations, enter final answers as a percent rounded to 1 decimal place.) Expected Rate of Return Standard Deviation Stocks % % Bonds % %
6) Assume that stock market returns do follow a single-index structure. An investment fund analyzes 1000 stocks in order to construct a mean-variance efficient portfolio constrained by 500 investments. They will need to calculate ________ estimates of firm-specific variances and ________ estimate/estimates for the variance of the macroeconomic factor. A) 500; 1 B) 1000; 1 C) 124,750; 1 D) 124,750; 500 E) 250,000; 500 Choose the correct option th justification.
Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 Based on the following information, 1. calculate the expected return and standard deviation for each of the following stocks. 2.What are the covariance and correlation between the returns of the two stocks? 3.Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset.

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