Problem 11-6 Calculating Expected Return [LO 1] Consider the following information: Rate of STP Probability of State Return State of if State Economy Recession of Economy .19 Occurs -10 Normal .46 .12 Вoom .35 .31 Calculate the expected return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return %
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- Ch. 11 Profitabiity Index Please solve the following and explain in detail. Calderon Kitchen Supplies is planning to invest $210,000 in a product. The product is expected to generate a net present value of $56,700. The profitablity index is???11.6 Calculating Returns and Standard Deviations Based on the following information, calculate the expected return and standard deviation: State of Economy Probability of SE Rate of Return If State Occurs Depression .15 -.148 Recession .30 .031 Normal .45 .162 Boom .10 .348Problem 13-10 Returns and Standard Deviations [LO1] Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Stock C Boom .15 .37 .47 .27 Good .45 .22 .18 .11 Poor .35 −.04 −.07 −.05 Bust .05 −.18 −.22 −.08 a. Your portfolio is invested 20 percent each in A and C, and 60 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
- Exercice 5 ( Answer question 7 to 9) The expected return on treasury bills E(RF)= 4% Calculate the expected return E(.) for the market portfolio, the FGL security and the SDL Calculate the variance and standard deviation for the market portfolio, FGL security and SDL Calculate the covariance between the market portfolio and the FGL security, and the covariance between the market portfolio and the SDL Calculate the correlation coefficient between the market portfolio and the FGL security, and the correlation coefficient between the market portfolio and the SDL security. Calculate the beta of FGL stock relative to the market portfolio with two different methods. Calculate the beta of the SDL stock relative to the market portfolio with two different Calculate the expected return of the Pfl portfolio composed of 70% FGL stock and 30% SDL stock, what is the beta of this portfolio? Using CAPM assess the performance of FGL and SDL securities, Are they overvalued or undervalued? Which of…Q 17 You invested $2,000 in the stock market one year ago. Today, the investment is valued at $1,800. What return did you earn? (Negative answer should be indicated by a minus sign.) RETURN EARNED______% What return would you need to get next year to break even overall? (Do not round intermediate calculations. Round your answer to 2 decimal places.) RETURN EARNED______%Problem 6-30 Yield Curve (LO4) The following table shows the prices of a sample of Treasury strips. Each strip makes a single payment at maturity. Years to Maturity Price, (% of face value) 1 98.652 % 2 95.151 3 91.344 4 87.280 d. What is the 4-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) e. Is the yield curve upward-sloping, downward-sloping, or flat? f. Is this the usual shape of the yield curve?
- Q25 Following are three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast growth 0.3 40 % Slow growth 0.4 10 Recession 0.3 –25 Determine the standard deviation of the expected return. (Do not round intermediate calculations and round your answer to 2 decimal places.) STANDARD DEVIATION. %Q6 Compute the expected return given these three economic states, their likelihoods, and the potential returns: (Round your answer to 1 decimal place.) Economic State Probability Return Fast growth 0.3 40 % Slow growth 0.4 10 Recession 0.3 –25 EXPECTED RETURN %Q11. n is the number of periods of an investment, PV is the starting value, FVn is the future value n periods ahead, and ^ means 'to the power of'. What is the correct formula for calculating return? Group of answer choices 1. (FVn/PV)^n - 1 2. (FVn/PV)^n 3. (PV/FVn)^n - 1 4. 1 - (FVn/PV)^n
- Problem 6-1 Financial Pages (LO1) Consider the table given below to answer the following question. Maturity Coupon Bid Price Asked Price Chg Asked Yield toMaturity (%) 15-02-2020 1.375 98.3281 98.3438 − 0.0078 2.228 15-02-2021 2.25 99.5781 99.5938 0.0313 2.391 15-02-2025 7.625 130.6719 130.6875 0.1094 2.770 15-02-2029 5.25 121.8516 121.9141 0.2344 2.908 15-02-2036 4.5 120.9063 120.9688 0.5313 2.986 15-02-2041 4.75 127.2422 127.3047 0.6641 3.084 15-02-2048 3 97.2656 97.2969 0.7266 3.140 a. What is the current yield of the 2.25% 2021 maturity bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Problem 10.16 projected financial statements for Walmart for Years +1 through +5. The following data for Walmart include the actual amounts for 2012 and the projected amounts for Years +1 through +5 for comprehensive income and common shareholders equity, assuming it will use implied dividends as the financial flexible account to balance the balance sheet (amounts in millions). Assume that the market equity beta for Walmart at the end of 2012 was 1.00. Assume that the risk-free interest rate was 3.0% and the market risk premium was 6.0%. Also assume that Walmart had 3,314 million shares outstanding at the end of 2012, and share price was 69.09. REQUIRED a. Use the CAPM to compute the required rate of return on common equity capital for Walmart. b. Compute the weighted-average cost of capital for Walmart as of the start of Year +1. At the end of 2012, Walmart had 48,222 million in outstanding interest-bearing debt on the balance sheet and no preferred stock. Assume that the balance sheet value of Walmarts debt is approximately equal to the market value of the debt. Assume that at the start of Year +1, it will incur interest expense of 4.2% on debt capital and that its average tax rate will be 32.0%. Walmart also had 5,395 million in equity capital from noncontrolling interests. Assume that this equity capital carries a 15.0% required rate of return. (For our forecasts, we assume noncontrolling interests are similar to preferred shares and receive dividends equal to the required rate of return each year.) c. Use the clean surplus accounting approach to derive the projected dividends for common shareholders for Years +1 through +5 based on the projected comprehensive income and shareholders equity amounts. (Throughout this problem, you can ignore dividends to noncontrolling interests.) d. Use the clean surplus accounting approach to project the continuing dividend to common shareholders in Year +6. Assume that the steady-state long-run growth rate will be 3% in Years +6 and beyond. e. Using the required rate of return on common equity from Requirement a as a discount rate, compute the sum of the present value of dividends to common shareholders for Walmart for Years +1 through +5. f. Using the required rate of return on common equity from Requirement a as a discount rate and the long-run growth rate from Requirement d, compute the continuing value of Walmart as of the beginning of Year +6 based on its continuing dividends in Years +6 and beyond. After computing continuing value, bring continuing value back to present value at the start of Year +1. g. Compute the value of a share of Walmart common stock, as follows: (1) Compute the sum of the present value of dividends including the present value of continuing value. (2) Adjust the sum of the present value using the midyear discounting adjustment factor. (3) Compute the per-share value estimate. h. Using the same set of forecast assumptions as before, recompute the value of Walmart shares under two alternative scenarios. To quantify the sensitivity of your share value estimate for Walmart to these variations in growth and discount rates, compare (in percentage terms) your value estimates under these two scenarios with your value estimate from Requirement g. Scenario 1: Assume that Walmarts long-run growth will be 2%, not 3% as before, and assume that its required rate of return on equity is 1 percentage point higher than the rate you computed using the CAPM in Requirement a. Scenario 2: Assume that Walmarts long-run growth will be 4%, not 3% as before, and assume that its required rate of return on equity is 1 percentage point lower than the rate you computed using the CAPM in Requirement a. i. What reasonable range of share values would you expect for Walmart common stock? Where is the current price for Walmart shares relative to this range? What do you recommend?E. 12.11% 2. North Around, Inc. stock is expected to return 22 percent in a boom, 13 percent in a normal economy, and -15 percent in a recession. The probabilities of a boom, normal economy, and recession are 6 percent, 92 percent, and 2 percent, respectively. What is the standard deviation on the returns of this stock? A. 011387 B. 000169 C.001506 D. 045318 E. 011561