Chapter 10, Problem 40QA

Based on the following information, what is the standard deviation of returns?  State of Economy Probability of State of Economy Rate of Return if State Occurs Recession .22 −.090 Normal .47 .105 Boom .31 .215

Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)   State of Economy Probability ofState of Economy Security Returnif State Occurs Recession 0.40   −4.50 % Normal 0.50   13.00   Boom 0.10   25.00

You are reviewing a five-year monthly return regression of returns for Jamesway Corp, a U.S.-based consumer product company, against the S&P 500. 0.8 ReturnJamesway = 0.25% + 0.80*ReturnS&P 500 (R2 = 25%). The U.S. treasury bond rate is currently 4.75%, the treasury bill rate today is 4.25% and the historical equity risk premium is 4.91%. b. Based upon this regression, estimate the long-term cost of equity in $ currency terms for this company. a. 9.66% b. 7.48% c. 8.68% d. 10.25%

Morphosis (Ltd) is a manufacturing company focusing on food production. The company recently paid a dividend of R2,50 per share and plans to increase its dividends by 10% in the first year, 15% in year 2, 20% in year 3 then level off at a constant rate of 5% thereafter. The T-bills are 6,50% and the return on the market is 25%. The standard deviations are 13 and 10 percent for Morphosis and the market respectively. The correlation coefficient between the two is 0,75. Find the intrinsic value of the share using ddm.

Consider the following annual returns of Molson Coors and International Paper:     Molson Coors   International Paper Year 1   19.3 %     5.1 % Year 2 − 9.0       −18.1   Year 3   39.5       −0.8   Year 4 − 8.1       27.2   Year 5   16.8       −11.7       Compute each stock’s average return, standard deviation, and coefficient of variation. (Round your answers to 2 decimal places.)       Molson Coors International Paper Average return   %   % Standard deviation   %   % Coefficient of variation

Consider the following annual returns of Molson Coors and International Paper:    MolsonCoors International Paper Year 1 20.3% 5.3% Year 2 -9.2 −18.3 Year 3 40.5 −0.1 Year 4 -8.5 27.4 Year 5 17.0 −11.9       Compute each stock’s average return, standard deviation, and coefficient of variation. (Round your answers to 2 decimal places.)     Molson Coors International Paper Average return _________.__% _______.__% Standard deviation __________.__% _______.__% Coefficient of variation __________.__ __________.__

You’ve observed the following returns on SkyNet Data Corporation’s stock over the past five years: 11 percent, –10 percent, 19 percent, 18 percent, and 10 percent.   a. What was the arithmetic average return on the company's stock over this five-year period? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b-1. What was the variance of the company's returns over this period? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What was the standard deviation of the company’s returns over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

You’ve observed the following returns on Pine Computer’s stock over the past five years: 13 percent, −13 percent, 20 percent, 25 percent, and 10 percent.   a. What was the arithmetic average return on the company’s stock over this five-year period? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b-1. What was the variance of the company’s returns over this period? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What was the standard deviation of the company’s returns over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)                  a. Average return   % b-1. Variance     b-2. Standard deviation   %

Suppose we have the following returns for large-company stocks and Treasury bills over a six-year period:   Year Large-Company stocks US Treasury bills 1 3.95% 6.53% 2 14.13 4.38 3 19.07 4.25 4 −14.61 7.30 5 −32.10 4.94 6 37.32 6.14   a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of the returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the average risk premium over this period? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent…