Suppose that you revise your expectations regarding the stock market (which were summarized in Spreadsheet 4.1) as follows:
Use equations 4.11 and 4.12 to compute the mean and standard deviation of the HPR on stocks. Compare your revised parameters with your previous ones.
Answer to relevant QuestionsDerive the probability distribution of the one-year holding period return on a 30-year Canada bond with an 8 percent coupon if it is currently selling at par and the probability distribution of its yield to maturity (YTM) a ...What is the range of risk aversion for which the client will neither borrow nor lend, that is, for which y = 1? Repeat problem 8 for an investor with A = 5. What do you conclude? You manage a risky portfolio with an expected rate of return of 18 percent and a standard deviation of 28 percent. The T-bill rate is 8 percent. Repeat problem 24 using a correlation of .3. (If you cannot calculate the three- year covariance in problem 26, assume it is .005.) A share of stock sells for $ 50 today. It will pay a dividend of $ 6 per share at the end of the year. Its beta is 1.2. What do investors expect the stock to sell for at the end of the year? Assume that the risk- free rate ...
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