The information regarding the risk level of three different stocks is presented below. 1. Which stock has the highest level of risk? Interpret the beta of that stock. 2. Which stock has the level of risk that is closest to the market level of risk? How do we measure the market level of risk? Beta Standard Deviation Flylnc 2.1 15.8% Alrco 1.1 17.3% SkyCorp 0.8 21.5%
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- K (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Common Stock B Return 13% 17% 18% Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a spreadsheet.) Return -7% 5% 16% 21% www a. Given the information in the table, the expected rate of return for stock A is 16.40 %. (Round to two decimal places.) The standard deviation of stock A is 1.74 %. (Round to two decimal places.) b. The expected rate of return for stock B is 9.8 %. (Round to two decimal places.) The standard deviation for stock B is 6.12 %. (Round to two decimal places.)Please do both questions QUESTION 1 Assume the following data for a stock: beta = 0.9; risk-free rate = 4 percent; market rate of return = 24 percent; and expected rate of return on the stock = 23 percent. Then the stock is: correctly priced. overpriced. this is the wrong answer underpriced. The answer cannot be determined. QUESTION 2 Assume the following data for a stock: beta = 1.5; risk-free rate = 8 percent; market rate of return = 18 percent; and expected rate of return on the stock = 22 percent. Then the stock is: overpriced. underpriced. this is the wrong answer correctly priced. cannot be determinedFollowing is information for two stocks: Investment r σ Stock X 8% 10% Stock Y 24% 36% Which stock has the greater relative risk? (show the computation of the relative risk for X & Y.)
- Question 1 Suppose you have the following expectations about the market condition and the returns on Stocks X and Y. Market Condition Probability Return on Stock X Return on Stock Y Bear Market 0.3 -3% -5% Normal Market 0.5 3% 5% Bull Market 0.2 8% 15% a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?1. Consider the three stocks in the following table. P, represents price at time t, and Q, represents shares outstanding at time t. Calculate the rates of return on the following indexes of the three stocks: A B с Po 90 50 100 a. A market-value-weighted index. b. An equally weighted index. Qo 100 200 200 P₁ 95 45 110 Q₁ 100 200 200
- Question 1 Consider the three stocks in the following table. P, represents price at time t, and Qt represents shares outstanding at time t. Po Qo P₁ Q₁ 50 100 60 100 A IB 30 200 24 200 C 20 200 30 200 a. Calculate the rate of return on a price-weighted index of the three stocks b. Calculate the rate of return on a market value-weighted index of the three stocksSubject: Financia; strategy & policy Question No 2 (part i) Answer the following. i) Consider the following information for three stocks, Stocks X, Y, and Z. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected return Standard deviation beta X 9.00% 15% 0.8 Y 10.75 15 1.2 Z 12.50 15 1.6 Fund Q has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (that is, required returns equal expected returns.) a) What is the market risk premium (rM – rRF)? b) What is the beta of Fund Q? c) What is the expected return of Fund Q? d) Would you expect the standard deviation of Fund Q to be less than 15%, equal to 15%, or greater than 15%? Explain.You've gathered the following infomration on stock A and stock B: Beta Volatility Stock 1.5 25% A Stock 1.25 30% B Which stock has a higher systematic risk? O O Stock A Stock B They're the same Not enough information to decide
- b) Suppose that you observe the following information in Table 2 for stocks A and B: Table 2 Expected Return (%) 11% Stock Beta A 0.8 В 14% 1.5 The risk-free rate of return is 6% and the expected rate of return on the market index is 12%. Using the Single-Index Model, calculate the alpha of both stocks. Show your calculations. Explain what the alpha of the single-factor model represents and interpret your results.Consider the following stocks with equal probabilities of return: Outcome | Return (Stock A) | Return (Stock B) 1 -5% 2% 2 10% 12% 3 18% 15% Compute the expected returns of stock A and B. Compute the total risk and relative risk of stock A and B. Which stock is risky? Ignoring the probabilities, what is the total risk and relative risk of stock A and B? Which stock is risky? Round-off final answers only to two decimal places.1. Calculate the Expected Return, Standard Deviation, and Beta for each stock. 2. Which stock has more systematic risk and which one has more unsystematic risk? Which stock is "riskier"? Explain your answer completely. Use excel to show formulas and calculations