midterm pt2 6-10

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Economics

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Apr 3, 2024

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n 6 1 Use the following information to calculate your company’s expected return. State Probability Return Boom 20% 0.38 Normal 60% 0.10 Recession 20% -0.17 Round to two decimal places. Answer: 0.102 Hide question 6 feedback Expected Return = (.20)(BOOM return) + (.60)(NORMAL return) + (.20)(RECESSION return) n 7 1 Calculating Expected Return for a portfolio is valuable, because it can be used to forecast the future value of the portfolio and it provides a benchmark for comparison to actual returns. True False Question 8 1 / 1 point Frazier Manufacturing paid a dividend last year of $2, which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the value of Frazier’s stock. $25.93 $31.33 $38.53 $41.63
Hide question 8 feedback SOLUTION: k = 4% + (11% – 4%)1.3 = 13.1% Po = [2(1.05)]/(.131 – .05) = $25.93 n 9 1 You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent in Bella Co., and 30 percent in Edward Resources. What is the expected return of your portfolio if Jacob, Bella, and Edward have expected returns of 0.02, 0.19, and 0.10, respectfully? Round to two decimal places. Answer: 0.112 Hide question 9 feedback SOLUTION: E(R portfolio ) = [x 1  * E(R 1 )] + [x 2  * E(R 2 )] + .... Where X is the percentage invested and E(R) is the expected return. n 10 1 Which of the following statements are true in regard to the concept of correlation? The value will always fall between -1 and 1. A correlation of 0.1 indicates that there is a very small correlation between the two stocks. A positive value indicates that when the return on one asset is positive, the return on the other asset will be positive. All of the above
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