Question: Exercise 2 Consider the following information about the portfolio which contains two stocks: State of Economy Boom Normal Recession Probability 0.2 0.6 0.2 + Return

Exercise 2 Consider the following information about the portfolio which contains two stocks: State of Economy Boom Normal Recession Probability 0.2 0.6 0.2 + Return if State occurs Stock B 15% 7% -4% Stock A 20% 12% -8% a) What is the standard deviation of the returns and expected return of each stock? b) What is the standard deviation of the returns and expected return on a $40,000 portfolio which consists of stocks A and B? Stock B is valued at $15,000. If the expected T-bill rate is 3.70 percent, what is the expected risk premium on the portfolio

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Personal Relationship O Criminal Intent Q.13. What type of Workplace Violence does this scenario match? Scenario: An Emergency Department patient kicks the attending doctor in the chest...

Consider the following information about the portfolio which contains two stocks: State of Economy Probability Return if State occurs Stock A Stock B Boom 0.2 20% 15% Normal 0.6 12% 7% Recession 0.2...

Consider the following information: Rate of Return if State Occurs 39 State of Economy Recession Normal Boom Probability of State of Economy 0.20 0.60 0.20 Stock A 0.05 0.09 0.14 Stock B -0.18 0.16...

This question has three parts. Show all calculations. Consider the following information on Share A and Share B. State of the Economy Boom Normal Recession Probability of the state occurring Return...

Consider the following information: 5 Rate of Return of State Occurs State of Economy Recession Normal Boom Probability of State of Economy .15 50 35 Stock A 02 10 15 Stock B -30 18 31 a. Calculate...

5 Consider the following information: Rate of Return if State Occurs hits State of Economy Recession Normal Boom Probability of State of Economy .20 .40 40 Stock A .05 . 10 . 13 Stock B - - 20 . 10 ....

Question 4(23 marks/Risk Return and CAPM Theo has $600,000 to invest and is considering the merits of two securities. She is interested in the common shares of Corporation X and Corporation Y. The...

S13-07 Calculating Returns and Standard Deviations (LO1] Consider the following information: Rate of Return if State Occurs 13 State of Economy Recession Normal Boom Probability of State of Economy...

**Show All Formulas Question 1- Complete the table below to calculate the expected Return, Variance, and Standard Deviation for the stocks of Home Depot, Inc (HD) and Lowe's Companies, Inc (LOW)...

don't write down the answer on paper Question 1 Consider the following information: Rate of return Stock A Stock B State of Economy Recession Normal Probability 0.30 -40% 6% 0.50 18% 4% Boom 0.20...

I have some finance problems need help,please download and look at them. 1. You purchased 200 shares of stock at a price of $36.72 per share. Over the last year, you have received total dividend...

The 95% confidence interval for the average number of customers in a queueing system is obtained as 6.48 +3.94 from 10 replications. What can you say about the absolute precision of this confidence...

A parent company purchased a 90% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $276,000 in excess of the...

Research by the NASW shows that after earning MSW and postgraduate degrees, 69 percent of social workers will spend part of their workweek serving in some managerial capacity (NASW, 2006); therefore,...

Cutlery Corner sells specialty knives to knife enthusiasts. They have a generous advertising budget to spread among four media channels: their recurring TV show, newspaper ads, radio spots, and...

For this assignment, you will be asked to create an investment portfolio based on the criteria listed below. Youll need to log into your Morningstar account and use their tools to research mutual...

Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two officesone in Chicago and one in Minneapolis. The firm...

The inventory records for Radford Co. reflected the following Beginning inventory @ May 1 100 units @ $4.00 First purchase@ May 7 300 units @ $4.40 Second purchase@ May 17 500 units @ $4.60 Third...

Question 3 ) A consumer products company relies on direct mail marketing pieces as a major component of its advertising campaigns. The company has three different designs for a new brochure and wants...

3.111 A professor finds that she awards a final grade of A to 20% of her students. Of those who obtain a final grade of A, 70% obtained an A on the midterm examination. Also, 10% of the students who...

3.109 In a large city, 8% of the inhabitants have contracted a particular disease. A test for this disease is positive in 80% of people who have the disease and is negative in 80% of people who do...

3.108 The Customs Inspection agency at international airports has developed a traveler profiling system (TPS) to detect passengers who are trying to bring more liquor into the country than is allowed...