Please solve d part only
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter16: Financial Statement Analysis
Section: Chapter Questions
Problem 2MAD
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Please solve d part only
![Security A is currently priced at $75 per share and security B is currently priced at $30 per share. The
economy can experience a recession, normal growth, or boom over the next year. The normal growth is
eight times as likely as the recession and the boom is as likely as the recession. The table below presents
the market-consensus per-share dividend and share price of each security in each state of the economy.
Security A
Security B
Dividend Ex-dividend price Dividend Ex-dividend price
in year 1
$-
$-
$1.05
Using the information above, answer parts a through f.
in year 1
$67.50
$82.50
$96.45
in year 1
$1.65
$1.65
$1.95
in year 1
$31.35
State
Recession
Normal
$34.35
Вoom
$19.05
[Hint: First, calculate the probability of each state (recession, normal, and boom). Second, calculate the
holding period return of each asset (security A and security B) in each state (recession, normal, and boom).
And then, you can solve parts a through f.]
d. Calculate the expected percentage return and its standard deviation of a portfolio that invests equal
amounts in security A and security B.
e. Calculate the expected percentage return and its standard deviation of a portfolio that takes a short
position in security A in the amount of $20,000 and a long position in security B in the amount of
$120,000.
f. Calculate the expected percentage return and its standard deviation of a portfolio that borrows
$10,000 at the annual risk-free rate of 4%, and takes a short position in security B in the amount of
$15,000 and a long position in security A in the amount of $75,000.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0212e7b8-a081-46c9-8d48-4f245b5f499f%2Feb3378fa-86b1-4835-bd89-0a271a84fc33%2F17ncky_processed.png&w=3840&q=75)
Transcribed Image Text:Security A is currently priced at $75 per share and security B is currently priced at $30 per share. The
economy can experience a recession, normal growth, or boom over the next year. The normal growth is
eight times as likely as the recession and the boom is as likely as the recession. The table below presents
the market-consensus per-share dividend and share price of each security in each state of the economy.
Security A
Security B
Dividend Ex-dividend price Dividend Ex-dividend price
in year 1
$-
$-
$1.05
Using the information above, answer parts a through f.
in year 1
$67.50
$82.50
$96.45
in year 1
$1.65
$1.65
$1.95
in year 1
$31.35
State
Recession
Normal
$34.35
Вoom
$19.05
[Hint: First, calculate the probability of each state (recession, normal, and boom). Second, calculate the
holding period return of each asset (security A and security B) in each state (recession, normal, and boom).
And then, you can solve parts a through f.]
d. Calculate the expected percentage return and its standard deviation of a portfolio that invests equal
amounts in security A and security B.
e. Calculate the expected percentage return and its standard deviation of a portfolio that takes a short
position in security A in the amount of $20,000 and a long position in security B in the amount of
$120,000.
f. Calculate the expected percentage return and its standard deviation of a portfolio that borrows
$10,000 at the annual risk-free rate of 4%, and takes a short position in security B in the amount of
$15,000 and a long position in security A in the amount of $75,000.
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