Years1NIM2345LO677008101112131415Suppose we have three stock market rate of returns as follows:%%%Petra6565690081071089500L 005857Intellege Syst. Precision Manufacutring inc.131410138314157∞81171212141031141 Find the risk of a protfolio of the following proportions: w1-0.3, w=0.5,w3=0.22 what is the risk of investing in only Petra stocks.11131115980089121000

Years Petra (%) Intellege Sys (%) Precision Manufacturing Inc (%) 1 6 3 13 2 5 14 14…

Years % Petra 1 2 3 4 5 6 7 7 8 10 11 12 13 14 15 6 5 6 9 8 10 7 10 8 9 5 5 ∞0 5 8 5 7 % Intellege Syst. 3 14 15 7 8 11 7 12 12 1 4 10 3 1 14 % Precision Manufacutring inc. 13 14 10 13 8 1 Find the risk of a protfolio of the following proportions: w1=0.3, w=0.5,w3=0.2 2 what is the risk of investing in only Petra stocks. 11 13 11 15 9 8 8 9 12 10

Years % Petra 1 2 3 4 5 6 7 7 8 10 11 12 13 14 15 6 5 6 9 8 10 7 10 8 9 5 5 ∞0 5 8 5 7 % Intellege Syst. 3 14 15 7 8 11 7 12 12 1 4 10 3 1 14 % Precision Manufacutring inc. 13 14 10 13 8 1 Find the risk of a protfolio of the following proportions: w1=0.3, w=0.5,w3=0.2 2 what is the risk of investing in only Petra stocks. 11 13 11 15 9 8 8 9 12 10

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 rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16 19 4 4 1 5 2 −9 a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? A. ABC B. XYZ c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d. If you were equally likely to earn a return of 20%, 8%, 16%, 4%, or 2%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? A. Arithmetic B. Geometric
Year AT&T Stock Returns Market Index Returns 1 8 6 2 7 3 3 10 12 4 14 13 5 8 9 The equation of the characteristic line for AT&T is: Group of answer choices Return = 0.538 + 0.9200*Market Return Return = -3.089 + 1.2436*Market Return Return = 0.813 + 0.6530*Market Return Return = 0.471 + 0.0311*Market Return Return = 4.578 + 0.5607*Market Return
Suppose your expectations regarding the stock price are as follows: State of the Market Probability Ending Price HPR (includingdividends) Boom 0.30 $ 140 53.5 % Normal growth 0.28 110 17.5 Recession 0.42 80 −12.0 Use the equations E(r)=Σsp(s)r(s)E(r)=Σsp(s)r(s) and σ2=Σsp(s) [r(s)−E(r)]2σ2=Σsp(s) [r(s)−E(r)]2 to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Characteristic Line and Security Market Line You are given the following set of data: Historical Rates of Return Year NYSE Stock X 1 -26.5% -11.0% 2 37.2 25.0 3 23.8 13.5 4 -7.2 2.0 5 6.6 11.1 20.5 18.5 7 30.6 19.0 a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Do not round intermediate calculations. Round your answer to two decimal places. b. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for both Stock X and the NYSE. Do not round intermediate calculations. Round your answers to two decimal places. Stock X NYSE Average return, FAvg % % Standard deviation, ơ %
Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Risk Premium Factor Industrial production (I) Interest rates (R) Consumer confidence (C) Required: 8% 4 7 The return on a particular stock is generated according to the following equation: r = 17% +0.9/+0.5R+0.70 C+ e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 3%. Note: Do not round intermediate calculations. Round your answer to 1 decimal place. a-2. Is the stock over- or underpriced? a-1. Equilibrium rate of return a-2 Is the stock over- or underpriced? %
Compute the abnormal rates of return for the following stocks during period t (ignore differential systematic risk): Stock % % % % BFT % B F T UE Rit = return for stock i during period t Rmt = return for the aggregate market during period t Use a minus sign to enter negative values, if any. Round your answers to one decimal place. ARBE: ARF: ARTI: ARC: AREL: с Rit 11.5% 9.2 12.5 12.5 15.9 Rmt 4.7% 6.2 6.6 15.2 11.1
Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (I) 6 % Interest rates (R) 2 Consumer confidence (C) 4 The return on a particular stock is generated according to the following equation: r = 15% + 1.0I + 0.5R + 0.75C + ea-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)
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.)
Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (I) 8 % Interest rates (R) 4 % Consumer confidence (C) 6 % The return on a particular stock is generated according to the following equation: r = 16% + 1.6I + 0.8R + 1.30C + e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 4%. (Do not round intermediate calculations. Round your answer to 1 decimal place.) a-2. Is the stock over- or underpriced?
What is Stock X's geometric returns if it has the following returns? Year 1 8% Year 2 - 5% Year 3 10% Year 4 - 6% Year 5 15% a. 4.1%. b. 5.2% c. 6.8% d. 8.5%
Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16 19 4 4 1 5 2 −9 (PLEASE SKIP THE FIRST THREE QUESTIONS) a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? multiple choice A. ABC B. XYZ c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d. If you were equally likely to earn a return of 20%, 8%, 16%, 4%, or 2%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future…
Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal growth Recession HPR (including Probability Ending Price dividends 0.20 $ 140 47.5% 0.29 110 13.0 0.51 80 -20.0 Use the equations E (r) = Ep (s) r(s) and o² = Σp (s) [r(s) – E(r)]² to compute the mean and standard deviation of the HPR on stocks. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Mean Standard deviation % %

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