a) Share A and Share B have the following returns under different states of the economy. State of economy Recession Normal Boom Calculate the following: Probability 0.2 0.5 0.3 Share A (Returns) (10%) 13% 25% i) The expected rate of returns for both shares. Share B (Returns) 11% 7% 8%

Northern Wear stock has an expected return of 14.6 percent. Given the information below, what is the expected return on this stock if the economy is normal? Probability of State of Economy .15 State of Economy Rate of Return Recession Normal -05 .80 Воom .05 .19 O 13 percent O 16 percent 18 percent O 21 percent O 23 percent

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.30 -7% 18% Normal economy Boom 0.60 20% 0.10 26% 10% 3% a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? b. Calculate the expected rate of return and standard deviation for each investment. c. Which investment would you prefer? Complete this question by entering your answers in the tabs below. Required A Required B Required C Calculate the expected rate of return and standard deviation for each investment. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place. Expected Rate of Return Stocks 12.5% Bonds 11.7 % Standard Deviation % %

Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone:

% Return on T-Bills, Stocks and Market Index State of the economy Probability T-Bills Phillips Pay -up Rubber-made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean   7 16.9 2.07 19.60 15 Standard Deviation   0 23.4 15.62 18.92 17.71 Coefficient of Variation   0 1.39 7.55 0.97 1.18 Covariance with MP   0 0.04 -0.3 0.02 0.03 Correlation with Market Index   0 1 -1.0 0.69 1 Beta   0 1.32 -0.88 0.74 1 CAPM Req. Return   7 17.54 -0.02 12.89 15.0 Valuation (Overvalued/Undervalued/Fairly valued)   Fairly valued Overvalued Undervalued Undervalued Fairly valued Nature of stock   Defensive Aggressive Defensive Defensive Defensive Using the data generated plot the…

You are given the following expected returns for a share under various scenarios. Scenario Probability Expected returnBoom16 % 34.6%Normal41 % 4.4% Recession 43% - 5.2% Calculate the expected return as a percent. Please enter the number as a percentage without the % sign (as you do for the interest rate in the calculator). For example, if your answer is 7.89%, then simply answer "7.89".

Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession Probability 0.3 0.6 0.1 Mean Standard deviation HPR 24.90 % % 41% 24 E (r) E-1P(s)r (s) Var (r) = o² = s-1p(s)[r (s) - E(r)]² SD (r) = o = √Var (r) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculation Round your answers to 2 decimal places.) -18 K

Vijay

es Consider the following information: State of Economy Recession Boom Probability of State of Expected return Economy .28 72 Portfolio Return if State Occurs Calculate the expected return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) -.13 .23 %

4.StockA sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Probability Stock Price Boom $50 Normal economy 42 Recession 30 50% 30% 20% Dividend $2.00 1.00 0.50 a.Calculate the expected holding-period return and standard deviation of the holding period return. b.Calculate the expected return and standard deviation of a portfolio invested half in this stock and half in Treasury bills. The return on bills is 4%.