•Question 1Suppose financial analysts believe that there are four equally likelystates of the economy: depression, recession, normal, and boom.The returns on the Supertech Company are expected to follow theeconomy closely, while the returns on the Slowpoke Company arenot. The return predictions are as follows:States of the economyAllos Inc. Returns (RA)Orangus Inc.Returns (Rg)snäurDepression-20%Recession20%%10%Normal-12%%6Required:1. For each company calculate:i. the expected returnsii. the Variance2. Assuming you are an investor with GHS100 available. If you investGHS60 and GHS40 in Allos Inc. and Orangus Inc. respectively,jii. the Standard deviationwhat will be your portfolio returns?3. Calculate the Standard deviation of the portfolio.

Introduction Expected Return: The projected return is the profit or loss that an investor can…

Answered: Suppose financial analysts believe that…

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 scenario analysis: Scenario Recession Normal economy Boom Probability 0.20 0.50 0.30 Rate of Return Stocks -4% 18% 29% Bonds 16% 9% 6% a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? b. Calculate the expected rate of return and standard deviation for each investment. c. Which investment would you prefer?
1.Ur CEO believes that economy will go to a recession. Which of the following benchmarks will he choose to implement for his bearish view ? 50 Treasury 50 HY 100% HY 30 Treasury 40 equity 30 HY NONE OF THE ABOVE
15 [Question text] Based on the following information, what is the expected return for the following stock? State of Economy Probability of State of Economy Rate of Return if State Occurs Boom 0.06 -6% Normal 0.74 7% Recession 0.20 18% Select one: A. 8.80 percent B. 8.23 percent C. 8.53 percent D. 8.42 percent
2) Calculate the expected rate of return and standard deviation for a security with the following possible outcomes: State of the Economy Probability of State Return if State Occurs Depression 0.2 -5% Recession 0.4 3% Slow growth 0.3 7% Moderate growth 0.1 10%
Q2 Following are four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast growth 0.30 60 % Slow growth 0.50 13 Recession 0.15 –15 Depression 0.05 -45 Compute the expected return and standard deviation. (Round your answers to 2 decimal places.) EXPECTED RETURN % STANDARD DEVIATION. %
12.2 Factor Models Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart: Factor Beta Expected Value Actual Value GDP .0000734 $19,571 $19,843 Inflation -.90 2.6% 2.7% Interest Rates -.32 3.4% 3.2% What is the systematic risk of the stock return? Suppose unexpected bad news about the firm was announced that causes the stock price to drop by .85 percent. If the expected return on the stock is 10.9 percent, what is the total return on…
You are given the following information: State of Economy Probability ofState of Economy Rate of ReturnIf State Occurs Depression .07 −.097 Recession .17 .067 Normal .42 .138 Boom .34 .219 Calculate the expected return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return % Calculate the standard deviation. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Standard deviation %
H3. Compute the standard deviation of the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.2 30% Slow Growth 0.5 6% Recession 0.3 −2% Please show proper step by step calculation
Stock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession. Stock B is expected to return 11 percent in a normal economy and 5 percent in a recession. The probability of the economy being normal is 75 percent with a 25 percent probability of a recession. What is the covariance of these two securities? A) .007006 B) .005180 C) .006274 D) .003938 (Don't Hand writing in solution) .
Consider the following information: State ofEconomy Probability ofState of Economy Rate of Returnif State Occurs Recession .37 −.11 Boom .63 .23 Calculate the expected return.
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 .348
Assume the economy has an 6 percent chance of booming, am 8 percent chance of being recessionary, and being normal the remainder of the time. A stock is expected to return 22.5 percent in a boom, 11.5 percent in a normal economy, and −8 percent in a recession. What is the expected rate of return on this stock?

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Suppose financial analysts believe that there are four equa states of the economy: depression, recession, normal, and a The returns on the Supertech Company are expected to follo uhilo t ho rotu on the Clown oke Co mpa