calculate the expected return Rate of return State of Economy Recession Probability Stock A Stock B 0.15 1.00% -0.25 Normal 0.55 9.00% 0.15 Boom 0.30 14.00% 0.38
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- The following table provides information relating to Omega Ltd, as well as the market portfolio. The risk-free rate of return is 3.4% . Asset Excess Return Variance Beta Omega 12% 0.021904 1.4 M 8.1% 0.010201 1 What is Omega's M2 value? a. 7.41% b. 11.59% c. 8.99% d. 9.27% What is Omega's Sharpe Ratio? a. 0.061 b. 0.811 c. 0.086 d. 0.581 please explain the calculation step by stepConsider the following information about the various states of economy and the returns ofvarious investment alternatives for each scenario. Answer the questions that follow.% Return on T-Bills, Stocks and MarketIndexState of the Economy Probability TBills Phillips PayupRubbermadeMarketIndexRecession 0.2 7 -22 28 10 -13Below Average 0.1 7 -2 14.7 -10 1Average 0.3 7 20 0 7 15Above Average 0.3 7 35 -10 45 29Boom 0.1 7 50 -20 30 43MeanStandard DeviationCoefficient of VariationCovariance with MPCorrelation with Market IndexBetaCAPM Req. ReturnValuation(Overvalued/Undervalued/FairlyValued)Nature of stock(Aggressive/Defensive)Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Each line item is worth 2 marksQuestion 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and…Consider the following information about the various states of economy and the returns ofvarious investment alternatives for each scenario. Answer the questions that follow.% Return on T-Bills, Stocks and MarketIndexState of the Economy Probability TBills Phillips PayupRubbermadeMarketIndexRecession 0.2 7 -22 28 10 -13Below Average 0.1 7 -2 14.7 -10 1Average 0.3 7 20 0 7 15Above Average 0.3 7 35 -10 45 29Boom 0.1 7 50 -20 30 43MeanStandard DeviationCoefficient of VariationCovariance with MPCorrelation with Market IndexBetaCAPM Req. ReturnValuation(Overvalued/Undervalued/FairlyValued)Nature of stock(Aggressive/Defensive)Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an…
- Your rate of retum expectations for the common stock of Company during the next year are: Possible Rate of Return Probability- 0.10 0.250.00 0.150.10 0.350.25 0.25 Required: Compute the expected return [E(R)] on this investment, the variance of this returm, and its standard deviationThe formula of which of the following considers the percentage change in price? a. Total expected yield b. Yield to date c. Present value yield d. Yield to maturityConsider the case of two financial assets and three market conditions (states). The tablebelow gives the respective probability for each market condition and the return of each assetin each one of them. Market Conditions State Recession Normal Expansion Probability of state 30% 40% 30% Return of asset A -30% 20% 55% Return of asset B -10% 70% 0% Consider the portfolio with 50% investment in each of the two assets above. Calculatethe expected return and the standard deviation of the portfolio.
- Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi. (b) Calculate the optimal weight of combining asset i and the index portfolio M . (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .The following data have been developed for the Donovan Company:Probability of Stateof NatureState of Nature Market Return, Rm Return for the Firm, Rj0.10 1 -0.15 -0.300.30 2 0.05 0.000.40 3 0.15 0.200.20 4 0.20 0.50The risk-free (Rf) rate is 6%.Calculate the following:(a) The covariance of the return for the Donovan Company with the marketreturn.(b) What is the required return for the Donovan Company? How does thiscompare with its expected return?free rate is 6%, find the beta for a portfolio that has expected rate of returnof 10%.(i). What percentage of this portfolio must an individual put into the marketportfolio in order to achieve an expected return of 10%?Consider the following information regarding a new investment that a company intends toundertake:.State of the Economy Probability Market Return Investment ReturnExpansion 0.30 40% 60%Normal 0.50 10% 25%Recession 0.20 -15% -40%a). Compute the variance and standard deviation of each b). Compute the correlation between the market the investment return(s) c). Compute the beta of the investment d). Assuming the risk free rate is 5% p.a. Compute the required rate return and advice if the investment is worth undertaken.
- YearRisk-free ReturnMarket ReturnWyatt Oil ReturnBeta20071.9%6.0%5.5%0.83320082.1%-38.5%-32.6%0.85320091.7%22.5%19.6%0.865 Using the average historical excess returns for both Wyatt Oil and the Market portfolio, your estimate of Wyatt Oil's beta is closest to (%) (2 decimal places):Consider the following information about the various states of economy and the returns ofvarious investment alternatives for each scenario. Answer the questions that follow. % Return on T-Bills, Stocks and Market IndexState of the Economy Probability TBills Phillips Payup Rubbermade 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…refer to below table ,Conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, number of units sold, the variable costs per unit, fixed costs and the cost of capital. Set these variables’ values at 10% above and 10% below their base-case values. 2. Include a graph in your analysis with below table? 10% above Year Net Cash Flow (RM) Discount Rate (13.20%) Present Value (RM) 0 -1,217,800.00 1 -1217800 1 328,750.00 0.883392 290415.19 2 337,330.00 0.780382 263246.2 3 346,423.15 0.689383 238818.31 4 355,195.10 0.608996 216312.32 5 614,461.20 0.537982 330569.16 NPV 121561.19 10% below Year Net Cash Flow (RM) Discount Rate (10.80%) Present Value (RM) 0 -1,145,800.00 1 -1145800 1 184,000.00 0.902527 166064.98 2 185,395.00 0.814555 151014.45 3 189,459.85 0.735158 139282.93 4 193,936.89 0.6635 128677.14 5 448,143.25 0.598827 268360.17…
