Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.10 10% 8% 2 0.20 13% 7% 3 0.20 12% 6% 4 0.30 14% 9% 5 0.20 15% 8% The coefficient of correlation between A and B is:
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Consider the following probability distribution for stocks A and B:
| State | Probability | Return on Stock A | Return on Stock B |
|---|---|---|---|
| 1 | 0.10 | 10% | 8% |
| 2 | 0.20 | 13% | 7% |
| 3 | 0.20 | 12% | 6% |
| 4 | 0.30 | 14% | 9% |
| 5 | 0.20 | 15% | 8% |
The coefficient of correlation between A and B is:
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- The standard deviation of stock returns for Stock A is 40%. The standard deviation of the market return is 20%. If the correlation between Stock A and the market is 0.70, then what is Stock A’s beta?An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?Consider the following information: Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .20 .010 −.35 Normal .55 .090 .25 Boom .25 .240 .48 Calculate the expected return for the two stocks. Calculate the standard deviation for the two stocks.
- What is the standard deviation of the returns on a stock given the following information? State of Economy Probability of State of Economy Rate of Return if State Occurs Boom .08 .171 Normal .70 .076 Recession .22 .017Covariance and Correlation The following table shows the expected returns from six different stocks in three different states of the economy: State of Economy Probability Return Stock A Return Stock B Return Stock C Return Stock D Return Stock E Return Stock F Growth 0.25 31% 3% 15% 21% 0% 18% Status Quo 0.50 21% 1% 3% 7% 4% 3% Recession 0.25 20% 4% -5% -6% 6% -4% Calculate the expected return for each stock. Calculate the standard deviation for each stock. Consider of a portfolio consisting of 50% in Stock A and 50% in Stock B. Calculate the covariance between Stocks A and B. Calculate the expected return of the portfolio. Calculate the standard deviation of the portfolio. Consider of a portfolio consisting of 50% in Stock C and 50% in Stock D. Calculate the covariance between Stocks C and D. Calculate the expected return of the portfolio. Calculate the standard deviation of the portfolio.…Covariance and Correlation The following table shows the expected returns from six different stocks in three different states of the economy: State of Economy Probability Return Stock A Return Stock B Return Stock C Return Stock D Return Stock E Return Stock F Growth 0.25 31% 3% 15% 21% 0% 18% Status Quo 0.50 21% 1% 3% 7% 4% 3% Recession 0.25 20% 4% -5% -6% 6% -4% Consider of a portfolio consisting of 50% in Stock E and 50% in Stock F. Calculate the covariance between Stocks E and F. Calculate the expected return of the portfolio. Calculate the standard deviation of the portfolio.
- Stocks A and B have the following historical returns: Year Stock A return Stock B return 2004 (24.25%) 5.5% 2005 18.5% 26.73% 2006 38.67% 48.25% 2007 14.33% (4.5%) 2008 39.13% 43.86% Looking at the annual returns on the two stocks, would you guess that the correlation coefficient between the two stocks is closer to +0.8 or to –0.8?Stocks A and B have the following historical returns: Year Stock A return Stock B return 2004 (24.25%) 5.5% 2005 18.5% 26.73% 2006 38.67% 48.25% 2007 14.33% (4.5%) 2008 39.13% 43.86% Calculate the standard deviation of returns for each stock and for the portfolio.Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the covariance and the correlation coefficient between HD and ML? xx
- The index model has been estimated for stocks A and B with the following results: RA = 0.12 + 0.610RM + eA RB = 0.04 + 1.416RM + eB σM = 0.270 σ(eA) = 0.20 σ(eB) = 0.10 What is the covariance between each stock and the market index?You have observed the following returns over time Year Stock X Stock Y Market 2014 14% 13% 12% 2015 19 7 10 2016 -16 -5 -12 2017 3 1 1 2018 20 11 15 What are the betas of Stocks X and Y?You were analyzing a stock and came up with the following probability distribution of the stock returns. What is the coefficient of variation on the company's stock?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. State of the Economy Probability of State Occurring Stock's Expected Return Boom 20.00% 21.00% Normal 46.00% 14.60% Recession 34.00% 8.45%
