FUND. OF CORPORATE FIN. 18MNTH ACCESS
15th Edition
ISBN: 9781259811913
Author: Ross
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 7QP
Summary Introduction
To determine: The arithmetic average, standard deviation, and variance of Security X and Security Y.
Introduction:
Arithmetic average return refers to the returns that an investment earns in an average year over different periods.
Variance refers to the average difference of squared deviations of the actual data from the mean or average.
Standard deviation refers to the deviation of the observations from the mean.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
10.7 Calculating Returns and Variability Using the following returns, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y:
Returns
Year X Y
1 12% 14%
2 24 29
3 -27 -33
4 14 17
5 19 37
EXAMPLE• Consider the following information:State Probability ABC, Inc. ReturnBoom .25 0.15Normal .50 0.08Slowdown .15 0.04Recession .10 -0.03• What is the expected return?• What is the variance?• What is the standard deviation?
D4)
Give the following true population SIM (not estimated SIM):
Ri-Rf=0.1%+1.2(Rb-Rf)+ϵi
When estimating this true SIM, what will be the estimated value of alpha (the intercept), when the variance of ϵi is small? Theriskless rate
is 0% and the market risk premium is 0.5%. Your answer should be in percentage points.
Select one:
a.0
b. near 0.1% but not exactly 0.1%
c. 0.5%
d. 0.1%
e. near 0.5% but not exactly 0.5%
Chapter 12 Solutions
FUND. OF CORPORATE FIN. 18MNTH ACCESS
Ch. 12.1 - Prob. 12.1ACQCh. 12.1 - Why are unrealized capital gains or losses...Ch. 12.1 - What is the difference between a dollar return and...Ch. 12.2 - Prob. 12.2ACQCh. 12.2 - Why doesnt everyone just buy small stocks as...Ch. 12.2 - What was the smallest return observed over the 88...Ch. 12.2 - About how many times did large-company stocks...Ch. 12.2 - What was the longest winning streak (years without...Ch. 12.2 - How often did the T-bill portfolio have a negative...Ch. 12.3 - Prob. 12.3ACQ
Ch. 12.3 - What was the real (as opposed to nominal) risk...Ch. 12.3 - Prob. 12.3CCQCh. 12.3 - What is the first lesson from capital market...Ch. 12.4 - In words, how do we calculate a variance? A...Ch. 12.4 - With a normal distribution, what is the...Ch. 12.4 - Prob. 12.4CCQCh. 12.4 - What is the second lesson from capital market...Ch. 12.5 - Prob. 12.5ACQCh. 12.5 - Prob. 12.5BCQCh. 12.6 - What is an efficient market?Ch. 12.6 - Prob. 12.6BCQCh. 12 - Chase Bank pays an annual dividend of 1.05 per...Ch. 12 - The risk premium is computed as the excess return...Ch. 12 - Prob. 12.4CTFCh. 12 - Prob. 12.5CTFCh. 12 - Prob. 12.6CTFCh. 12 - Investment Selection [LO4] Given that Fannie Mae...Ch. 12 - Prob. 2CRCTCh. 12 - Risk and Return [LO2, 3] We have seen that over...Ch. 12 - Market Efficiency Implications [LO4] Explain why a...Ch. 12 - Efficient Markets Hypothesis [LO4] A stock market...Ch. 12 - Semistrong Efficiency [LO4] If a market is...Ch. 12 - Efficient Markets Hypothesis [LO4] What are the...Ch. 12 - Stocks versus Gambling [LO4] Critically evaluate...Ch. 12 - Efficient Markets Hypothesis [LO4] Several...Ch. 12 - Efficient Markets Hypothesis [LO4] For each of the...Ch. 12 - Calculating Returns [LO1] Suppose a stock had an...Ch. 12 - Calculating Yields [LO1] In Problem 1, what was...Ch. 12 - Prob. 3QPCh. 12 - Prob. 4QPCh. 12 - Nominal versus Real Returns [LO2] What was the...Ch. 12 - Bond Returns [LO2] What is the historical real...Ch. 12 - Prob. 7QPCh. 12 - Risk Premiums [LO2, 3] Refer to Table 12.1 in the...Ch. 12 - Calculating Returns and Variability [LO1] Youve...Ch. 12 - Calculating Real Returns and Risk Premiums [LO1]...Ch. 12 - Calculating Real Rates [LO1] Given the information...Ch. 12 - Prob. 12QPCh. 12 - Prob. 13QPCh. 12 - Calculating Returns and Variability [LO1] You find...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Using Return Distributions [LO3] Suppose the...Ch. 12 - Prob. 18QPCh. 12 - Distributions [LO3] In Problem 18, what is the...Ch. 12 - Blumes Formula [LO1] Over a 40-year period an...Ch. 12 - Prob. 21QPCh. 12 - Calculating Returns [LO2, 3] Refer to Table 12.1...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Prob. 1MCh. 12 - Prob. 2MCh. 12 - Prob. 3MCh. 12 - Prob. 4MCh. 12 - A measure of risk-adjusted performance that is...Ch. 12 - Prob. 6M
Knowledge Booster
Similar questions
- Security A has the following probability distribution of returns:Scenario Probability Return1] 0.1 15%2] 0.8 25%3] 0.1 35%What is the variance for Security A?A 0.002B 0.020C 0.200D 0.300arrow_forwardWhat is the variance of returns for Security ABC? probability distribution fro security ABC: Outcome Probability Expected Return A 60% 20% B 40% (5%)(no rounding off until the final answer; Format: final answer at 4 decimal places X.XXXX)arrow_forwardWhat is the Variance of returns for Security XYZ? (no rounding off until the final answer, final answer at 5 decimal places “X.XXXXX”) the following probability distribution for security XYZ is determined: OUTCOME PROBABILITY EXPECTED RETURN A 20% 20% B 80% 25%arrow_forward
- Part a State Pr(a) ra Pr(b) rb 1 0.2 10% 0.25 12% 2 0.6 15% 0.40 20% 3 0.2 20% 0.35 18% Given the probability distribution above, determine (Calculate) and compare the: Expected return (means) Variance Standard deviation Part b How important is risk to returns and what are the key elements that must be analyzed in this regard before an investment decision is made? Discuss in no more than 200 words.arrow_forwardReturns Year X y 1 17 % 20 % 2 20 32 3 11 15 4 – 7 – 18 5 10 22 Using the returns shown above, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y.arrow_forwardBased on the following information, what is the variance? State of Economy Recession Normal Boom Probability of State Rate of Return if State Occurs of Economy Multiple Choice O 12749 .03251 01625 02438 .30 .39 .31 -9.80% 11.30% 22.30% ‒‒‒arrow_forward
- 3. Suppose the index model for stocks A and B is estimated with the following results:rA = 2% + 0.8RM + eA, rB = 2% + 1.2RM + eB , σM = 20%, and RM = rM − rf . The regressionR2 of stocks A and B is 0.40 and 0.30, respectively. Answer the following questions. (a) What is the variance of each stock? (b) What is the firm-specific risk of each stock? (c) What is the covariance between the two stocks?arrow_forward. Refer to the information below; Outcome Probability Return Recession 40% -25% Expansion 25% 20% Boom 35% 45% A). What is the expected variance, & Standard deviation? B) Graphically illustrate the above findings in both probability distribution and continuous probability distribution curves, and provide appropriate narratives of the graphs.arrow_forwardConsider the following returns and states of the economy for TZ.Com.: Economy Probability Return Weak 15% 2% Normal 50% 8% Strong 35% 15% What is the standard deviation of TZ's returns?arrow_forward
- A project’s coefficient of variation is 0.55. The project has a positive coefficient of correlation of 0.20. The expected value is $1,200. What is the standard deviation?arrow_forward1. Over the past 3 years an investment returned 0.18, -0.11, and 0.08. What is the variance of returns?arrow_forwardD4 The variance of the remains of securities A & B equals to 0.18 and 0.2 respectively. The coefficient β of the securities A and B is 1.2 and 0.8. Taking into consideration that the standard deviation of the market portfolio is 15% . What is the contribution percentage of systematic risk of each security? Solve and choose one of the below answers. a. 15.25% and 6.72% b. 9% and 4.5% c. 15.25% and 5.25% d. 84.75% and 55.97%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you