FinCorp Inc. conducted an extensive analysis of the economy and concluded that the probability of a recession next year is 35 percent, the probability of a boom is 45 percent, and the probability of a stable economy is 20 percent. Your boss has estimated that the price of PakCom Ltd. will be $60 if there is a recession, $110 if there is a boom and $85 if the economy is stable. Currently, PakCom is trading for $80. Calculate the ex ante expected return on PakCom.
Answer to relevant QuestionsCalculate the ex post standard deviation of returns for the following: 50 percent, 30 percent, 20 percent, 35 percent, and 55 percent.TrenStar Inc. is planning to offer several investments to investors and is in the process of designing its marketing materials. Each investment’s value in the future will be related to the return on the S&P/TSX Composite ...Which of the portfolios identified in Practice Problem 18 are undervalued, correctly valued, and overvalued?Suppose you have a portfolio that has $100 in stock A with a beta of 0.9, $400 in stock B with a beta of 1.2, and $300 in the risk-free asset. You have another $200 to invest. You wish to achieve a beta for your whole ...Today, you observe the market portfolio has an expected return of 13 percent, with a standard deviation of 7 percent. The risk-free rate is 2 percent. If only the risk-free rate increases, will the composition of the market ...
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