You are doing some financial projections based on different scenarios for the economy. You believe there is a 10% chance that we will have a strong growth economy, a 20% chance that we will have a growth economy, a 40% chance that we will have a normal economy, a 10% chance that we will have a recession and a 20% chance that we will have a depression. Your expected Stock Fund returns for the scenarios are 24%, 16%, 15%, -8% and -12%, respectively. For your Bond Fund, your expected returns are -7%, -2%, 6%, 2% and -5%, respectively. If you create a Risky Portfolio with a 80/20 mix of Bonds/Stocks, what is the expected volatility of the Portfolio? Group of answer choices 5.36% 11.23% 6.58% 7.84% None of the above

You are doing some financial projections based on different scenarios for the economy. You believe there is a 10% chance that we will have a strong growth economy, a 20% chance that we will have a growth economy, a 40% chance that we will have a normal economy, a 10% chance that we will have a recession and a 20% chance that we will have a depression. Your expected Stock Fund returns for the scenarios are 24%, 16%, 15%, -8% and -12%, respectively. For your Bond Fund, your expected returns are -7%, -2%, 6%, 2% and -5%, respectively. If you create a Risky Portfolio with a 80/20 mix of Bonds/Stocks, what is the expected volatility of the Portfolio? Group of answer choices 5.36% 11.23% 6.58% 7.84% None of the above

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

You recently purchased a stock that is expected to earn 20 percent in a booming economy, 10 percent in a normal economy, and lose 30 percent in a recessionary economy. There is a 5 percent probability of a boom and an 80 percent chance of a normal economy. What is the expected rate of return and standard deviation on this stock?
.An analyst believes that economic conditions during the next year will either be strong, normal, or weak, and she thinks that the Corrigan Company's returns will have the following probability distribution. Conditions Probability (%) Return (%) Strong 30 30 Normal 40 15 Weak 30 -10 What is Corrigan’s expected return? What is Corrigan’s standard deviation of returns?
You are considering buying stock A. If the economy grows rapidly, you may earn 30 percent on the investment, while a declining economy could result in a 20 percent loss. Slow economic growth may generate a return of 6 percent. If the probability is 15 percent for rapid growth, 20 percent for a declining economy, and 65 percent for slow growth, what is the expected return on this investment?
You recently purchased a stock that is expected to earn 25 percent in a booming economy, 10 percent in a normal economy, and lose 38 percent in a recessionary economy. There is a 10 percent probability of a boom and a 75 percent chance of a normal economy. What is standard deviation on this stock?
Blue Bell stock is expected to return 8.4 percent in a boom, 8.9 percent in a normal economy, and 9.2 percent in a recession. The probabilities of a boom, normal economy, and a recession are 6 percent, 92 percent, and 2 percent respectively. What is the standard deviation of the returns on this stock? Can the calculator an excel solution be provided?
Suppose that the probability that the economy will be in a recession one year from now is 0.25. If the economy is in a recession one year from now the price of XYZ common stock will be $150. If the economy is not in a recession one year from now the price of XYZ common stock will be $200. If the current price of XYZ stock is $175, what is the standard deviation of the returns of XYZ common stock over the next year? Enter your answer as a percent without the “%”. Round your final answer to two decimals.
We estimate that there will be two states of the economy, boom and bust, in the next period, with probability of 30% and 70%, respectively. We also estimate that the return on Stock A will be 50% in the boom state and -10% in the bust state. What is the expected return on Stock A? Multiple Choice 6% 9% 10% 7% 8%
Consider the following scenario analysis: Scenario Probability Stocks Bonds Recession 0.30 -6 % +15% Normal Economy 0.30 +14 + 7 Boom 0.40 +26 +5 Calculate the expected rate of return and standard deviation for each investment? Which investment would you prefer?
A financial manager believes that her firm will earn a 15% return next year. This firm has a beta of 1.8, and the expected return on the market is 8% while the risk-free rate is 2%. First, compute the return this firm should earn given its level of risk. Second, determine whether this firm’s stock is overvalued or undervalued given what the manager thinks this company will earn next year.
You recently purchased a stock that is expected to earn 19 percent in a booming economy, 8percent in a normal economy, and lose 28 percent in a recessionary economy. There is a 20percent probability of a boom and a 70 percent chance of a normal economy. What is yourexpected rate of return on this stock?
The common stock of Manchester & Moore is expected to earn 16.2 percent in a recession, 8 percent in a normal economy, and lose 3.5 percent in a booming economy. The probability of a boom is 18 percent while the probability of a recession is 7 percent. What is the expected rate of return on this stock?
There is 6 percent probability of recession, 21 percent probability of a poor economy, 47 percent probability of a normal economy, and 26 percent probability of a boom. A stock has returns of −20.8 percent, 4.4 percent, 12.2 percent and 27.9 percent in these states of the economy, respectively. What is the stock's expected return?