(2) An economy has two scenarios: boom or bust. The returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D are
(a) If each scenario is equally likely, find the beta of each stock.
(b) Find the expected rate of return on the market portfolio and on each stock.
(c) If the treasury bill rate is 4%, what does CAPM say about the fair expected rate of return on the two stocks?
The returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D are
Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. Rate of Return Scenario Market Aggressive Stock A Defensive Stock D Bust –6 % –12 % –4 % Boom 15 36 10 Required: a. Find the beta of each stock. b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. c....
Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. Scenario Bust Boom Rate of Return Aggressive Defensive Market Stock A Stock D -12% -4% 15 -6% 36 10 Required: a. Find the beta of each stock. b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. c. If the T-bill...
Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. Scenario Bust Boom Rate of Return Aggressive Defensive Market Stock A Stock D -8% -11% -6% 33 40 18 Required: a. Find the beta of each stock. b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. c. If the T-bill...
Saved Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. Scenario Bust Boom Rate of Return Aggressive Defensive Market Stock A Stock D -8% -13% -6% 26 35 19 Required: a. Find the beta of each stock. b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. c. If the...
Problem 12-14 Expected Returns Problem 12-14 Expected Returns (LO2) Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. Rate of Return Aggressive Defensive Market Stock A Stock D -8% -115 -6% Scenario Bust -225 -6% Boom Required: a. Find the beta of each stock. b. If each scenario is equally likely, find the expected rate of return on the market portfolio...
You have prepared the following scenario analysis for the returns of the market index portfolio, M, and a stock. Assume that each scenario is equally likely. 1. Rate of return Scenario Bust Boom Market 10% 30% Stock 14% 26% a. Find the variance of the market and the stock, and beta of the stock. b. What is the expected rate of return on the stock and the market index? If the T-bill rate is 6 percent, what does the CAPM...
You have prepared the following scenario analysis for the returns of the market index portfolio, M, and a stock. Assume that each scenario is equally likely. 1. Rate of return Scenario Bust Boom Market 10% 30% Stock 14% 26% a. Find the variance of the market and the stock, and beta of the stock. b. What is the expected rate of return on the stock and the market index? If the T-bill rate is 6 percent, what does the CAPM...
Consider the following three equally likely scenarios for the economy and the returns in each scenario for a stock. Scenario Stock A Bust 7% Normal 9% Boom 11% If the T-bill rate is 4 percent and the rate of return on the market portfolio is 11 percent, what does CAPM say about the required rate of return on the stock? Assume that the beta of stock A is 1.5. Is this stock a good buy? The expected return is 9...
Consider the following three equally likely scenarios for the economy and the returns in each scenario for a stock. Scenario Stock A Bust 7% Normal 9% Boom 11% If the T-bill rate is 4 percent and the rate of return on the market portfolio is 11 percent, what does CAPM say about the required rate of return on the stock? Assume that the beta of stock A is 1.5. Is this stock a good buy? The expected return is 9...
New Mode Delay The returns of market portfolio and stock A under three equally likely scenarios are given in the table. Calculate the beta for stock A. Scenario Market Stock A Bust 5% 5 % Normal 15 % 15 Boom 25 % 40% 1.65 1.75 1.85 1.77 UU