Consider the following table: Scenario Severe recession Mild recession Normal growth Boom Mean return Variance Probability 0.15 0.20 0.35 0.30 Covariance Answer is not complete. 3.3 Required: a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.) % %- Squared Stock Fund Rate of Return Answer is not complete. -34% -18.5% Squared 14% 24% b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.) Bond Fund Rate of Return -10% 68 78 -38

Consider the following table: Scenario Severe recession Mild recession Normal growth Boom Mean return Variance Probability 0.15 0.20 0.35 0.30 Covariance Answer is not complete. 3.3 Required: a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.) % %- Squared Stock Fund Rate of Return Answer is not complete. -34% -18.5% Squared 14% 24% b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.) Bond Fund Rate of Return -10% 68 78 -38

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following table: Scenario Severe recession Mild recession Normal growth Boom Probability 0.05 0.25 0.40 0.30 Stock Fund Rate of Return -32% -12% 17% 22% Bond Fund Rate of Return -11% 17% 10% -7% a. Calculate the values of mean return (or called expected return) and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) (Hint: Recall the formula on Page 29 (Example: Volatility of a Two-Stock Portfolio) of Slides of Lecture 2a) b. Calculate the value of the covariance between the stock and bond funds. (Negative
Consider the following table: Scenario Probability Stock FundRate of Return Bond FundRate of Return Severe recession 0.10 −38% −14% Mild recession 0.20 −6.0% 10% Normal growth 0.35 10% 4% Boom 0.35 40% 4% Required: a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.) b. Calculate the value of the covariance between the stock and bond funds
Consider the following table: Scenario Probability Stock FundRate of Return Bond FundRate of Return Severe recession 0.10 −30% −11% Mild recession 0.15 −12.0% 8% Normal growth 0.35 6% 2% Boom 0.40 39% 5% Required: a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.) b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.)
Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return Severe recession 0.05 –27 % –12 % Mild recession 0.25 –7 % 18 % Normal growth 0.40 12 % 11 % Boom 0.30 17 % –8 % a.Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) mean return: variance: b.Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)vovariance:
Consider the following table: Scenario Probability Stock Fund Rate of Return Bond Fund Rate of Return Severe recession 0.05-33%-12% Mild recession 0.25 -13% 18% Normal growth 0.40 18% 11% Boom 0.30 23%-8% Required: a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return Severe recession 0.05 –28 % –13 % Mild recession 0.25 –8 % 19 % Normal growth 0.40 13 % 12 % Boom 0.30 18 % –9 % a.Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) b.Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider the following states of outcomes, probabilities, and expected returns on only stocks three stocks in your portfolio; X, Y, and Z. State Probability X Y Z Boom 0.1 16% 10% 22% Semi-Boom 0.15 14% 8% 18% Normal 0.55 10% 6% 14% Mild-Recession ?? 5% 4% -10% Full-Recession 0.05 -3% 2% -12% a. What is the expected return of the portfolio if $25,000 is invested in X, $35,000 in Y, and $30,000 invested in stock Z? b. What are the standard deviations of stocks X, Y, and Z?
An analyst has estimated how a particular stock’s return will vary depending on what will happen to the economy. What is the standard deviation? STATE OF THEECONOMY PROBABILITY OFSTATE OCCURRING STOCK'S EXPECTEDRATE IF THISSTATE OCCURS Recession Below Average Average Above Average Boom .10 .20 .40 .20 .10 (.60) (.10) .15 .40 .90
Scenario Probability Stock fund Rate of Return Bond fund Rate of Return Severe recession 0.05 -30 -11 Mild recession 0.25 -15 13 Normal Growth 0.40 15 12 Boom 0.30 32 -7 Calculate the mean return and variance for both the stock and bond funds.
Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Boom .12 Normal Bust .33 Stock A Rate of Return .07 .16 Stock B Rate of Return .32 .27 -.26 Stock Rate of Return .45 .25 -.35 a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return, the variance, and the standard deviation ? Note: Do not round intermediate calculations . Round your variance answer to 5 decimal places, e.g., .16161. Enter your other answers as a percent rounded to 2 decimal places , e.g., 32.16. bIf the expected T-bill rate is 4.5 percent, what is the expected risk premium on the portfolio ? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16 . % a. Expected return Variance Standard deviation % b. Expected risk premium %
A second version of the Markowitz portfolio model maximizes expected return subject to a constraint that the variance of the portfolio must be less than or equal to some specified amount. Consider the Hauck Financial Service data. Click on the datafile logo to reference the data. Annual Return (%) Mutual Fund Year 1 Year 2 Year 3 Year 4 Year 5 Foreign Stock 10.06 13.12 13.47 45.42 -21.93 Intermediate-Term Bond 17.64 3.25 7.51 -1.33 7.36 Large-Cap Growth 32.41 18.71 33.28 41.46 -23.26 Large-Cap Value 32.36 20.61 12.93 7.06 -5.37 Small-Cap Growth 33.44 19.40 3.85 58.68 -9.02 Small-Cap Value 24.56 25.32 -6.70 5.43 17.31 (a) Construct this version of the Markowitz model for a maximum variance of 38. Let: FS = proportion of portfolio invested in the foreign stock mutual fund IB = proportion of portfolio invested in the intermediate-term bond fund LG = proportion of portfolio invested in the large-cap growth fund LV = proportion of portfolio invested in the large-cap value fund SG =…
Consider the following information about Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession .20 .05 −.22 Normal .55 .20 .09 Irrational exuberance .25 .08 .42 The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.)

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