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Consider the simple two-period model. Let today be period zero and tomorrow be period 1. Assume...
You want to invest in a portfolio that consists of two stocks: AAA and BBB. According...
You want to invest in a portfolio that consists of two stocks: AAA and BBB. According to your analysis, you are expecting three states of nature: recession, steady and expansion, with probabilities of 0.2, 0.5 and 0.3 respectively. Current AAA stock price is $50, while BBB stock is $40. The following table show the analysts' prediction for the price in each state: State of Economy Probability AAA stock BBB STOCK Recession 0.2 $41 Steady 0.5 $54 $42 Expansion 0.3 $58...
Problem 1 (2.5 marks). Suppose there are only two time periods, today (period 1) and tomorrow...
Problem 1 (2.5 marks). Suppose there are only two time periods, today (period 1) and tomorrow (period 2), and only one consumption good, let's call it food. Assume that food is a perfectly divisible good. Let ci and c2 denote the amount of food consumed today and tomorrow, respectively. Note that here we use subscripts to denote time periods. The price of food today is equal to Pi = P, but as the rate of inflation is > 0, the...
answer using excel please (all calcultions should be rounded one decimal place) You work for a...
answer using excel please (all calcultions should be rounded
one decimal place)
You work for a small investment management firm. You have been provided with the following historical information for three stocks and the market index. The information is shown in the table below. Stock AAA Inc. Dividend Price 2012 2013 2014 2015 2016 2017 2018 $45 $50 S55 $60 $52 $62 $80 $1.40 $1.40 $1.70 $1.85 $1.85 $1.90 BBB Inc. Stock Dividend Price $130 $140 $1.50 $118 $1.55 $135...
6) Consider a simple stock market where there exist two risky securities, s stock in a...
6) Consider a simple stock market where there exist two risky securities, s stock in a two-stock portfolio be w, and w, the projected return on each stock be denoted by E(R )and E(R,), the variance of each stock be σ' and σ| respectively, and the covariance of the two stocks be σ12 . ecurity 1 and security 2. Let the weights attached to each The expected return of the portfolio is given by the expression E(R,)-w,E(R, ) + w2E(R2)...
2. Company A's stock has a beta of BA 1.5, and Company B's stock has a beta of βΒ-2.5. Expected r...
2. Company A's stock has a beta of BA 1.5, and Company B's stock has a beta of βΒ-2.5. Expected returns on this two stocks are E [rA]-9.5 and E rB 14.5. Assume CAPM holds. At age 30, you decide to allocate ALL your financial wealth of $100k between stock A and stock B, with portfolio weights wA + wB1. You would like this portfolio to be risky such that Bp- 3 (a) Solve for wA and wB- (b) State...
Suppose we have the following information about two stocks: Beta Expected Return 11% 6% 1.6 Stock...
Suppose we have the following information about two stocks: Beta Expected Return 11% 6% 1.6 Stock 1 Stock 2 0.5 If the CAPM holds, what is the risk-free interest rate, the expected stock market return, and the market risk premium? (hint: Use CAPM equation for each separately; plug in known values and see if you can find unknown parameters through the two equations. Question #5 (30 points) Download monthly price data for Cigna (CI) and Amazon.com (MNZ) for the period...
Question 1: You are planning about putting some money in the stock market. There are two...
Question 1: You are planning about putting some money in the stock market. There are two stocks in your mind: stock A and stock B. The economy can either go in recession or it will boom in the coming years. Being an optimistic investor, you believe the likelihood of observing an economic boom is two times as high as observing an economic depression. You also know the following about your two stocks: State of the Economy Probability RA RB Boom...
1. Compute the expected return for a company that will be traded at $100, $120, and $140 next per...
1. Compute the expected return for a company that will be traded at $100, $120, and $140 next period with probabilities 20%, 40%, and 40%, respectively. The price of that company today is $110. 2. Compute the correlation between assets A and B if you know that the standard deviation of B is 50% of the standard deviation of A and the covariance between the two assets is 0.5 times the variance of asset A. 3. What is the risk...
Pinulo retums? 1 0 capital asset pricing model given historical data 2. Consider Table 1. (%)...
Pinulo retums? 1 0 capital asset pricing model given historical data 2. Consider Table 1. (%) 3.77 Table 1 Summary Statistics Alpha, Beta, Expected Return and Variance a/c to the Stocks Sample Single Index Model Covariance Residual and Return Alpha Beta with Market Expected Variance Variance Market (%) (%) Return (%) (%) 3.60 3.59 4.80 Market 4.20 0.00 8.70 (a) Consider Table 1. Using the single index model, calculate beta and alpha for stocks 1 and 2. Interpret your findings....
Two stocks under evaluation have the following probability distribution for their rate of returns. Probability 30%...
Two stocks under evaluation have the following probability distribution for their rate of returns. Probability 30% 20% 50% Rate of Return Stock A Stock B 18% 10% -2% 5% 10% 0% Table Q1 (a) Explain the expected return for each of the stocks by giving the value. (3 marks) (b) Explain the standard deviation for the return of each of the stocks by giving the value. (6 marks) (c) Explain the correlation coefficient between the returns of the two stocks...
You want to invest in a portfolio that consists of two stocks: AAA and BBB. According to your analysis, you are expecting three states of nature: recession, steady and expansion, with probabilities of 0.2, 0.5 and 0.3 respectively. Current AAA stock price is $50, while BBB stock is $40. The following table show the analysts' prediction for the price in each state: State of Economy Probability AAA stock BBB STOCK Recession 0.2 $41 Steady 0.5 $54 $42 Expansion 0.3 $58...
Problem 1 (2.5 marks). Suppose there are only two time periods, today (period 1) and tomorrow (period 2), and only one consumption good, let's call it food. Assume that food is a perfectly divisible good. Let ci and c2 denote the amount of food consumed today and tomorrow, respectively. Note that here we use subscripts to denote time periods. The price of food today is equal to Pi = P, but as the rate of inflation is > 0, the...
answer using excel please (all calcultions should be rounded
one decimal place)
You work for a small investment management firm. You have been provided with the following historical information for three stocks and the market index. The information is shown in the table below. Stock AAA Inc. Dividend Price 2012 2013 2014 2015 2016 2017 2018 $45 $50 S55 $60 $52 $62 $80 $1.40 $1.40 $1.70 $1.85 $1.85 $1.90 BBB Inc. Stock Dividend Price $130 $140 $1.50 $118 $1.55 $135...
6) Consider a simple stock market where there exist two risky securities, s stock in a two-stock portfolio be w, and w, the projected return on each stock be denoted by E(R )and E(R,), the variance of each stock be σ' and σ| respectively, and the covariance of the two stocks be σ12 . ecurity 1 and security 2. Let the weights attached to each The expected return of the portfolio is given by the expression E(R,)-w,E(R, ) + w2E(R2)...
2. Company A's stock has a beta of BA 1.5, and Company B's stock has a beta of βΒ-2.5. Expected returns on this two stocks are E [rA]-9.5 and E rB 14.5. Assume CAPM holds. At age 30, you decide to allocate ALL your financial wealth of $100k between stock A and stock B, with portfolio weights wA + wB1. You would like this portfolio to be risky such that Bp- 3 (a) Solve for wA and wB- (b) State...
Suppose we have the following information about two stocks: Beta Expected Return 11% 6% 1.6 Stock 1 Stock 2 0.5 If the CAPM holds, what is the risk-free interest rate, the expected stock market return, and the market risk premium? (hint: Use CAPM equation for each separately; plug in known values and see if you can find unknown parameters through the two equations. Question #5 (30 points) Download monthly price data for Cigna (CI) and Amazon.com (MNZ) for the period...
Pinulo retums? 1 0 capital asset pricing model given historical data 2. Consider Table 1. (%) 3.77 Table 1 Summary Statistics Alpha, Beta, Expected Return and Variance a/c to the Stocks Sample Single Index Model Covariance Residual and Return Alpha Beta with Market Expected Variance Variance Market (%) (%) Return (%) (%) 3.60 3.59 4.80 Market 4.20 0.00 8.70 (a) Consider Table 1. Using the single index model, calculate beta and alpha for stocks 1 and 2. Interpret your findings....
Two stocks under evaluation have the following probability distribution for their rate of returns. Probability 30% 20% 50% Rate of Return Stock A Stock B 18% 10% -2% 5% 10% 0% Table Q1 (a) Explain the expected return for each of the stocks by giving the value. (3 marks) (b) Explain the standard deviation for the return of each of the stocks by giving the value. (6 marks) (c) Explain the correlation coefficient between the returns of the two stocks...
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