# 8 Finance questions-Consider the following information

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 “%”

sign in your response.)

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

“%” sign in your response.)

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 “%”

sign in your response.)

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

your answer to 2 decimal places. Omit the “%” sign in your

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

indicated by a minus sign. Omit the “%” sign in your response.)

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

your answer to 2 decimal places. Omit the “%” sign in your

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

your answer to 2 decimal places. Omit the “%” sign in your

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

your answer to 2 decimal places. Omit the “%” sign in your

response.)

Expected return

%

b.

If a portfolio of the two assets has a beta of

1.0, what are the portfolio weights?(Round

your answers to 2 decimal places. Omit the “%” sign in your

response.)

Weight

xS

%

xrf

%

c.

If a portfolio of the two assets has an

expected return of 6 percent, what is its beta?(Round

your answer to 2 decimal places.)

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

your response.)

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

your answer to 2 decimal places. Omit the

“%” sign in your response.)

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

risk-free rate?(Round your answer to 2

decimal places. Omit the “%” sign in your response.)

Expected return

%

Risk-free rate

%