# 8 Finance questions-Consider the following information

August 14, 2017

finance questions-Consider the following information:

Rate of Return If State Occurs

State of

Probability of

Economy

State of Economy

Stock A

Stock B

Recession

.35

.07

-.17

Normal

.40

.09

.16

Boom

.25

.13

.36

a.

Calculate the expected return for the two stocks.(Round your answers to 2 decimal places. Omit the “%”

Expected Return for A

%

Expected Return for B

%

b.

Calculate the standard deviation for the two stocks. (Round your answers to 2 decimal places. Omit the

Standard deviation for A

%

Standard deviation for B

%

Need help figuring out standard deviation

7.
value:
3.00 points

Problem 11-9
Consider the following information:

Rate of Return If State Occurs

State of

Probability of

Economy

State of Economy

Stock A

Stock B

Stock C

Boom

.25

.18

.32

.41

Good

.20

.12

.15

.15

Poor

.40

.05

-.08

-.06

Bust

.15

-.01

-.16

-.09

a.

Your portfolio is invested 25 percent each in A and C, and 50
percent in B. What is the expected return of the portfolio?(Round your answer to 2 decimal places. Omit the “%”

Expected return

%

b-1.

What is the variance of this portfolio?(Round your answer to 5 decimal places.)

Variance of this portfolio

b-2.

The standard deviation?(Round
response.)

Standard deviation

%

**Need help figuring out standard
deviation.

8.
value:
4.00 points

Problem 11-10

Fill in the missing information in the following table. Assume
that Portfolio AB is 60 percent invested in Stock A.(Round your answer to 2 decimal places. Negative amounts should be

Annual Returns on Stocks A and B

Year

Stock A

Stock B

Portfolio AB

2006

14

%

24

%

%

2007

35.8

%

-36.2

%

%

2008

-18.6

%

46.2

%

%

2009

25.4

%

16.6

%

%

2010

14.2

%

25.8

%

%

Avg return

%

%

%

Std deviation

%

%

%

Only was able to figure out average return.

11.
value:
1.00 points

Problem 12-2

A stock has an expected return of 11.2
percent, its beta is .50, and the risk-free rate is 4 percent. What must the
expected return on the market be?(Round
response.)

Expected return

%

Don’t know how to figure out expected
return. Please show all steps. I need to
know how to figure out for the test.

Problem 12-3

A stock has an expected return of 15.9
percent, a beta of 1.70, and the expected return on the market is 11.2
percent. What must the risk-free rate be?(Round
response.)

Risk-free rate

%

Problem 12-10

A stock has a beta of 1.2 and an expected return of 8 percent. A
risk-free asset currently earns 3 percent.

a.

What is the expected return on a portfolio
that is equally invested in the two assets?(Round
response.)

Expected return

%

b.

If a portfolio of the two assets has a beta of
1.0, what are the portfolio weights?(Round
response.)

Weight

xS

%

xrf

%

c.

If a portfolio of the two assets has an
expected return of 6 percent, what is its beta?(Round

Beta

d.

If a portfolio of the two assets has a beta of
2.40, what are the portfolio weights?(Negative
amounts should be indicated by a minus sign. Omit the “%” sign in

Weight

xS

%

xrf

%

20.
value:
1.00 points

Problem 12-13

Stock Y has a beta of 1.5 and an expected
return of 15.5 percent. Stock Z has a beta of 0.4 and an expected return of 7
percent. What would the risk-free rate have to be for the two stocks to be
correctly priced relative to each other?(Round

Risk-free rate

%

21.
value:
2.00 points

Problem 12-15

Suppose you observe the following situation:

Security

Beta

Expected Return

Peat Co.

1.20

14.6

Re-Peat Co.

.60

10.3

Assume these securities are correctly priced.
Based on the CAPM, what is the expected return on the market? What is the