Rate of Return Scenario Probability Stocks Bonds Recession 0.20 -4 194 Normal economy 0.40 20 Boom 0.40 264 a. Is it reasonable to assume that Treesury bonds will provide higher returns in recessions than in booms? No Yes b. Calculate the expected rate of return ond stondard deviation for esch investment. (Do not round Intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) O Answer is complete but not entirely correct. Expected Rate of Return standard Devlation Stocks 17.6 12.3 0 % Bonds 10.6 0.1

Rate of Return Scenario Probability Stocks Bonds Recession 0.20 -4 194 Normal economy 0.40 20 Boom 0.40 264 a. Is it reasonable to assume that Treesury bonds will provide higher returns in recessions than in booms? No Yes b. Calculate the expected rate of return ond stondard deviation for esch investment. (Do not round Intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) O Answer is complete but not entirely correct. Expected Rate of Return standard Devlation Stocks 17.6 12.3 0 % Bonds 10.6 0.1

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 26P

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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?
Consider the following scenario analysis: RATE OF RETURN Stocks &Bonds Scenario Probability Stocks Bonds Recession 0.20 −9% 21% Normal economy 0.70 22 9% Boom 0.10 25 5% a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? Yes or No b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) Expected Rate of Return Standard Deviation Stocks % % Bonds % %
Consider the following: Rate of Return Scenario Probability Stocks Bonds Recession .30 -8% 21% Normal Economy .50 22% 9% Boom .20 32% 9% a). Calculate the expected rate of return and standard deviation for each investment. (Don't round intermediate calculations, enter final answers as a percent rounded to 1 decimal place.) Expected Rate of Return Standard Deviation Stocks % % Bonds % %
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 −4 % 16 % Normal economy 0.50 18 % 9 % Boom 0.30 29 % 6 % a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? Yes or No b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) Expected Rate of Return Standard deviation Stock Bond c. Which investment would you prefer?
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An investment analyst estimates the following probabilities of return depending on the state of the economy. Business conditions Boom Good Normal Recession Poor Probability 0.05 0.25 0.40 0.25 0.05Petronas share return % 12 10 4 -2 -7Maxis share return % 26 12 8 -6 -22Berjaya share return % 41 23 12 -27 -55Compute the Expected risk of the above shares?
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.30 −8 % 21 % Normal economy 0.50 22 % 9 % Boom 0.20 32 % 9 % a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? No Yes b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) c. Which investment would you prefer?
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Consider the following scenario analysis: Scenario Probability Stocks Bonds Recession 0.20 - 8% +17% Normal Economy 0.20 +12 + 9 Boom 0.60 +28 +7 Note: No need to enter currency symbol and comma and % just type numbers with nearest round off number and percentages (for example: 10000 or 10000.65=10001 or 10.65%=11) a. Calculate the expected rate of return Stock Bond b. Calculate standard deviation for each investment? Stock Bond c. Calculate Coefficient of Variation Stock Bond Consider a portfolio with weights of 0.60 in stocks and 0.40 in bonds. d. What is the rate of return on the portfolio? Portfolio e. What is the expected rate of return and standard deviation of the portfolio? Portfolio…
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An investment analyst estimates the following probabilities of return depending on the state of the economy. Business conditions Boom Good Normal Recession Poor Probability 0.05 0.25 0.40 0.25 0.05 Petronas share return % 12 10 4 -2 -7 Maxis share return % 26 12 8 -6 -22 Berjaya share return % 41 23 12 -27 -55 Compute the expected rate of return and Expected risk of the above shares What are their Shape Ratios?