Reference no: EM132923125

Questions -

Q1) There is a 44.40% probability of a below average economy and a 55.60% probability of an average economy. If there is a below average economy stocks A and B will have returns of -7.00% and 15.30%, respectively. If there is an average economy stocks A and B will have returns of 11.00% and -4.60%, 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 17.60% probability of an average economy and a 82.40% probability of an above average economy. You invest 24.60% of your money in Stock S and 75.40% of your money in Stock T. In an average economy the expected returns for Stock S and Stock T are 14.90% and 12.40%, respectively. In an above average economy the expected returns for Stock S and T are 26.60% and 39.50%, respectively. What is the expected return for this two stock portfolio?

Q3) You are invested 15.10% in growth stocks with a beta of 1.78, 37.40% in value stocks with a beta of 0.61, and 47.50% 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 = 0.79; expected return on the Market = 8.90%; expected return on T-bills = 2.00%; current stock Price = $5.53; expected stock price in one year = $8.66; expected dividend payment next year = $1.67. Calculate the

a) Required return for this stock:

b) Expected return for this stock:

Q5) The market risk premium for next period is 5.90% and the risk-free rate is 1.90%. Stock Z has a beta of 0.90 and an expected return of 8.40%. What is the:

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

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