Finance State Probability Stock ABC Stock DEF Depression .3 -.10 - .05 Normal .3 .10 .12 Boom .4 .16 .08 What is the correlation between Stock ABC and Stock DEF? What is the standard deviation of return for Stock DEF? What is the expected return for Stock ABC? show how to solve this and answer
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Finance
State Probability Stock ABC Stock DEF
Depression .3 -.10 - .05
Normal .3 .10 .12
Boom .4 .16 .08
What is the correlation between Stock ABC and Stock DEF?
What is the standard deviation of return for Stock DEF?
What is the expected return for Stock ABC?
show how to solve this and answer
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- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
- Do not provide Excel Screet shot rather use tool table
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- Market equity beta measures the covariability of a firms returns with all shares traded on the market (in excess of the risk-free interest rate). We refer to the degree of covariability as systematic risk. The market prices securities so that the expected returns should compensate the investor for the systematic risk of a particular stock. Stocks carrying a market equity beta of 1.20 should generate a higher return than stocks carrying a market equity beta of 0.90. Nonsystematic risk is any source of risk that does not affect the covariability of a firms returns with the market. Some writers refer to nonsystematic risk as firm-specific risk. Why is the characterization of nonsystematic risk as firm-specific risk a misnomer?Calculate the coefficients of variation for the following stocks: Stock Expected return Standard deviation of return 1 0.065 0.25 2 0.06 0.17 3 0.14 0.24 What is the coefficient of variation for stock 1? What is the coefficient of variation for stock 2? What is the coefficient of variation for stock 3? f you want to get the best risk-to-reward trade-off, which stock should you buy? Stock 2 Stock 3 Stock 1USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Stock Rit Rmt ai Beta C 12 10 0 0.8 E 10 8 0 1.1 Rit = return for stock i during period t Rmt = return for the aggregate market during period t What is the abnormal rate of return for Stock C during period t using only the aggregate market return (ignore differential systematic risk)?
- Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?Consider the following information about Stocks X and Y: State of Economy Probability of State Stock X Returns Stock Y Returns Recession 0.15 0.11 -0.25 Steady 0.55 0.18 0.11 Boom 0.30 0.08 0.31 The market risk premium is 7.5 percent, and the risk-free rate is 4 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is “riskier”? Explain.a) Calculate the expected return for Stock media Prima and Stock Astro b) Calculate the standard deviation for Stock media Prima and Stock Astro Note: please clear answer no lile, answer a, answer b.
- Please do both questions QUESTION 1 Assume the following data for a stock: beta = 0.9; risk-free rate = 4 percent; market rate of return = 24 percent; and expected rate of return on the stock = 23 percent. Then the stock is: correctly priced. overpriced. this is the wrong answer underpriced. The answer cannot be determined. QUESTION 2 Assume the following data for a stock: beta = 1.5; risk-free rate = 8 percent; market rate of return = 18 percent; and expected rate of return on the stock = 22 percent. Then the stock is: overpriced. underpriced. this is the wrong answer correctly priced. cannot be determined1b) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, andstandard deviation of stock B is 0.044. Which of the following is the most appropriate to depict therisk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? (For Part B I have uploaded an image that links to this question) c) Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B(bB).Assume you know the expected and required rate of returns of the following stocks. Explainwhich of the following stocks are undervalued, overvalued and fairly valued. Stock Expected rate of return Required rate of return Evaluation X 10 12 ? Y 6 5 ? Z 4 4 ?
- Question 1 Suppose you have the following expectations about the market condition and the returns on Stocks X and Y. Market Condition Probability Return on Stock X Return on Stock Y Bear Market 0.3 -3% -5% Normal Market 0.5 3% 5% Bull Market 0.2 8% 15% a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?You run a regression for a stock's return on a market index and find the following Excel output: Multiple R 0.35 R-Square 0.12 Adjusted R-Square 0.02 Standard Error 38.45 Observations 12 Coefficients Standard Error t-Stat p-Value Intercept 4.05 15.44 0.26 0.80 Market 1.32 0.97 1.36 0.10 The stock is ________ riskier than the typical stockConsider the following data. Stock Standard Deviation Beta X 5% 1.37 Y 8% 0.61 To minimize risk, you should choose Stock _____ if held individually and Stock _____ if held as part of a well-diversified portfolio. X; Y Y; X There is not enough information to determine which stocks to hold. Y; Y X; X