Here are the question different parts: a. Compute expected return for stock x and for stock y.b. compute the standard deviation for stock x and stock y.c. Would you invest in stock x or stock y? explain. You are trying to develop a strategy for investing in two differentstocks. The anticipated annual return for a $1,000 investment inReturnsEconomiceach stock under four different economic conditions has theProbabilityConditionStock X Stock Yprobability distribution shown to the right. Complete parts (a)through (c) below.0.1Recession- 50- 160Slow growthModerate growthFast growth0.230500.4901500.3170190

Answered: Image /qna-images/answer/b196dff2-b3ea-41f4-a65f-e8fe4b5445d0.jpg

Answered: . Compute expected return for stock x…

. Compute expected return for stock x and for stock y. b. compute the standard deviation for stock x and stock y. c. Would you invest in stock x or stock y? explain.

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

See similar textbooks

Similar questions

The owner of a boat has estimated the following distribution of demand for a particular kind of boat. no.of demanded 0 1 2 3 probability 0.10 0.20 0.30 0.40 Each boat costs him 10 rials and he sells them for 20 rials each. Prices are given in hundreds rialunits. Boats that are left unsold at the end of the season must be disposed off for 8 rials each. Howmany should be stocked so as to maximize his expected profit?
The swing (difference between the maximum and minimum values) of S&P500 on any one day is distributed with pdf f1(x) = 2 20(1+x/20)3 , x > 0 if the market that day is “stable” or as f2(x) = 2 200(1+x/200)3 if the market is “volatile”. A market analyst assigns a 10% chance for Apr 29, 2013 being “volatile”. The analyst believes that the market state (stable/volatile) of a day persists the next day with probability 0.9 or switches to the other state with probability 0.1. The loss associated with flagging Apr 30, 2013 as “volatile” (flag V) or “stable” (flag S) are given below. Truth about Apr 30, 2013 ‘Volatile’ ‘Stable’ Flag V 0 1 S 10 0 Should the analyst flag Apr 30, 2013 as “stable” if a swing of 20 is recorded on Apr 29, 2013? Justify your answer.
(b) A milk man buys milk at K10 per litre and sells it at K12 if sold on the same day; if not, it can be sold at K9 per litre the next day. Demand of milk lies between 45 litres and 60 litres per day and its probabilities are uniformly distributed over this demand. If each day’s demand is independent of the previous day’s demand, how many litres should be ordered every day?
A computer store sells 3 computer models priced at P26,000, 32,000, and42,000, and two brands of monitors priced at P3,200 and 3, 800, respectively.The joint pmf of X, the computer price, and Y , the monitor price, is given inthe table below. X\Y 3,200 3,800 26,000 0.30 0.25 32,000 0.20 0.10 42,000 0.10 0.05 Compute the marginal probability functions (pmf’s).
Hubert has difficulty finding parking in his neighborhood and, thus, is considering the gamble of illegally parking on the sidewalk because of the opportunity cost of the time he spends searching for parking. On any given day, Hubert knows he may or may not get a ticket, but he also expects that if he were to do it every day, the average amount he would pay for parking tickets should converge to the expected value. If the expected value is positive, then in the long run, it will be optimal for him to park on the sidewalk and occasionally pay the tickets in exchange for the benefits of not searching for parking. Suppose that Hubert knows that the fine for parking this way is $100, and his opportunity cost (OC) of searching for parking is $20 per day. That is, if he parks on the sidewalk and does not get a ticket, he gets a positive payoff worth $20; if he does get a ticket, he ends up with a payoff of$___.Given that Hubert does not know the probability of getting caught, compute his…
b) You decide to buy 10,000 shares of each company. If the covariance between ABC and XYZ is 0, what is the expected return and standard deviation of your portfolio over the next year? 1
(a) The monthly returns on two securities A and B are both known to be normally distributed, with the following parameters: Security Expected monthly Return, E(Ri) Standard Deviations of monthly Return, SD(Ri)A 3% 4%B 2% 3% Correlation between monthly returns: corr(RA, RB) = rAB = 0.3 An investor intends to create an equally-weighted portfolio by investing equal amounts in securities A and B at the start of each month. (i) What is the probability that the monthly return on security A is negative? (ii) What are the expected monthly return and the standard deviation of the monthly return on the equally-weighted portfolio? (iii) What is the probability that the monthly return on the equally-weighted portfolio is negative? (b) Six prize…
Assume that interest rate is 0.02, growth rate of the Geometric Brownian Motion of the stock price is 0.03, and its volatility is 0.1. The current stock price is $100. If one independent sample from a standard normal distribution is 0.6, simulate the stock prices at t = 0.05 using the Euler-Maruyama scheme under the risk-neutral probability measure.
A certain brand of upright freezer is available in threedifferent rated capacities: 16 ft3, 18 ft3, and 20 ft3. LetX = the rated capacity of a freezer of this brand sold ata certain store. Suppose that X has pmf x 16 18 20 p(x) 0.2 0.5 0.3 a. Compute E(X), E(X2), and V(X). b. If the price of a freezer having capacity X is70X - 650, what is the expected price paid by thenext customer to buy a freezer? c. What is the variance of the price paid by the nextcustomer? d. Suppose that although the rated capacity of a freezeris X, the actual capacity is h(X) = X - 0.008X2. Whatis the expected actual capacity of the freezer purchased by the next customer?
Assume you have created a 2-stock portfolio by investing $30,000 in stock X with a beta of 0.8, and $70,000 in stock Y with a beta of 1.2. Market risk premium is 8% and risk-free rate is 6%. The followings are the probability distributions of Stocks X and Y’s future returns: State of Economy Probability rx rY Recession 0.1 -10% -35% Below average 0.2 2% 0% Average 0.4 12% 20% Above average 0.2 20% 25% Boom 0.1 38% 45% Calculate the portfolio’s expected rate of return and the standard deviation of its future returns Calculate the required rate of return of your portfolio. Which stock in…
Suppose you are considering investing in two opportunities, a Dow Jones Fund and a Weak-Economy Fund. The following information is available on the return from investing $1000 in each fund. Probability Economic Scenario DJ Fund Return W-E Fund Return 0.2 Recession -51 243 0.5 Stable 249 168 0.3 Expanding 649 -82 a. Calculate the mean and standard deviation of returns for each fund. Which do you prefer and why? b. Compute the return in each scenario for a portfolio which has 70% invested in the DJ Fund and 30% in the W-E Fund. c. For the portfolio which has 70% invested in the DJ Fund and 30% in the W-E Fund, find the mean and standard deviation of portfolio returns. Do you prefer the portfolio? d.How would you decide on the percentages to invest in the DJ and W-E funds?
Consider two assets (X and Y) with mX = 10%, mY = 10%, σX2=.16, σY2=.25, and Cov(X,Y) = -.125. What is the expected return and variance of the portfolio having 70% invested in X and 30% invested in Y? Compare the risk and return of this portfolio with the risks and returns associated with investing everything in either X or Y. a) What is p(XY)? b) What is the expected return of the portfolio (m.7X+.3Y)? c) What is the standard deviation of the portfolio (s.7X+.3Y)? d) How does the standard deviation of the portfolio (s.7X+.3Y) compare to the standard deviations of assets X and Y? Show all work and formulas used in EXCEL