Reference no: EM132919125

Question -

Q1) There is a 17.10% probability of a below average economy and a 82.90% probability of an average economy. If there is a below average economy stocks A and B will have returns of 1.90% and 19.60%, respectively. If there is an average economy stocks A and B will have returns of 7.30% and 2.60%, respectively. Compute the:

a) Expected Return for Stock A:

b) Expected Return for Stock B:

c) Standard Deviation for Stock A:

d) Standard Deviation for Stock B:

Q2) There is a 19.70% probability of an average economy and a 80.30% probability of an above average economy. You invest 21.40% of your money in Stock S and 78.60% of your money in Stock T. In an average economy the expected returns for Stock S and Stock T are 11.30% and 9.90%, respectively. In an above average economy the the expected returns for Stock S and T are 14.10% and 10.10%, respectively. What is the expected return for this two stock portfolio?

Q3) You are invested 35.00% in growth stocks with a beta of 1.64, 24.40% in value stocks with a beta of 0.90, and 40.60% in the market portfolio. What is the beta of your portfolio?

Q4) An analyst gathered the following information for a stock and market parameters: stock beta = 1.30; expected return on the Market = 12.60%; expected return on T-bills = 3.60%; current stock Price = $8.52; expected stock price in one year = $9.39; expected dividend payment next year = $4.28. Calculate the

a) Required return for this stock:

b) Expected return for this stock:

Q5) The market risk premium for next period is 4.90% and the risk-free rate is 3.40%. Stock Z has a beta of 1.09 and an expected return of 15.00%. What is the:

a) Market's reward-to-risk ratio:

b) Stock Z's reward-to-risk ratio: