1) 2) 3) 4) 5) If you want to use formulas, listed below are some formulas...
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1) 2) 3) 4) 5) If you want to use formulas, listed below are some formulas commonly used in statistical Calculations: Suppose a Stock "A" has returns given by Ri for a state of economy Pi (assuming that there are n possible states of the economy) (Pi represents the different possible states of the economy. For example, P1 could be a below average economy and P2 could be an above average economy etc). Then, the expected return for Stock A is calculated as: E(R) = {P,R, i=1 The variance of the stocks return is calculated as the sum of the squares of difference between the actual returns and the expected return, weighted by the appropriate probability. Therefore, the variance is calculated as: The standard deviation is simply the square root of the variance. Var(R) = P,(R, E(R,)} i=1 Note: If we use historical data for our calculations, we are simply assuming that each data point had an equal probability and hence we essentially are ignoring the probability weighting. Suppose a portfolio consists of Stocks A, B, and C, with weights WA, wB, and wC and returns RA, RB, and Rc respectively. Then the return of the portfolio is given by: R Portfolio =wR = wR + wRg +wcRc i=A = 6) Suppose a portfolio consists of Stocks A, B, and C, with beta-coefficients BA, BB, and BC and returns RA, RB, and Rc respectively. Then the beta of the portfolio is given by: If we divide one equation by the other, we will get Po = P = P Po = = Do(1+g) D R-g BPortfolio = BR =BR+BR + BcRc i=A D (1+g) R-g D Do = = R-g D R-g D(1+g) = (1+g) Do We can use this to solve for the growth rate and then use the growth rate if the problem calls for it or to solve for the Expected rate of Return if the problem calls for it. Question 2 An analyst gathered the following information for a stock and market parameters: stock beta = 1.46; expected return on the Market = 12.07%; expected return on T-bills = 2.77%; current stock Price = $5.18; expected stock price in one year = $14.09; expected dividend payment next year = $1.22. 1 pts Calculate the expected return for this stock. Please share your answer as a percentage rounded to 2 decimal places. Question 3 1 pts The market risk premium for next period is 7.1% and the risk-free rate is 3.17%. Stock Z has a beta of 0.68 and an expected return of 8.95%. What is the market's reward-to-risk ratio? 1) 2) 3) 4) 5) If you want to use formulas, listed below are some formulas commonly used in statistical Calculations: Suppose a Stock "A" has returns given by Ri for a state of economy Pi (assuming that there are n possible states of the economy) (Pi represents the different possible states of the economy. For example, P1 could be a below average economy and P2 could be an above average economy etc). Then, the expected return for Stock A is calculated as: E(R) = {P,R, i=1 The variance of the stocks return is calculated as the sum of the squares of difference between the actual returns and the expected return, weighted by the appropriate probability. Therefore, the variance is calculated as: The standard deviation is simply the square root of the variance. Var(R) = P,(R, E(R,)} i=1 Note: If we use historical data for our calculations, we are simply assuming that each data point had an equal probability and hence we essentially are ignoring the probability weighting. Suppose a portfolio consists of Stocks A, B, and C, with weights WA, wB, and wC and returns RA, RB, and Rc respectively. Then the return of the portfolio is given by: R Portfolio =wR = wR + wRg +wcRc i=A = 6) Suppose a portfolio consists of Stocks A, B, and C, with beta-coefficients BA, BB, and BC and returns RA, RB, and Rc respectively. Then the beta of the portfolio is given by: If we divide one equation by the other, we will get Po = P = P Po = = Do(1+g) D R-g BPortfolio = BR =BR+BR + BcRc i=A D (1+g) R-g D Do = = R-g D R-g D(1+g) = (1+g) Do We can use this to solve for the growth rate and then use the growth rate if the problem calls for it or to solve for the Expected rate of Return if the problem calls for it. Question 2 An analyst gathered the following information for a stock and market parameters: stock beta = 1.46; expected return on the Market = 12.07%; expected return on T-bills = 2.77%; current stock Price = $5.18; expected stock price in one year = $14.09; expected dividend payment next year = $1.22. 1 pts Calculate the expected return for this stock. Please share your answer as a percentage rounded to 2 decimal places. Question 3 1 pts The market risk premium for next period is 7.1% and the risk-free rate is 3.17%. Stock Z has a beta of 0.68 and an expected return of 8.95%. What is the market's reward-to-risk ratio?
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The provided formulas are commonly used in financial calculations related to expected returns variance and portfolio analysis They are not directly applicable to the capital budgeting analysis for Ger... View the full answer
Related Book For
Financial Accounting and Reporting a Global Perspective
ISBN: 978-1408076866
4th edition
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
Posted Date:
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