Consider the following scenario analysis for stocks a and b and for

Question:Risk and Return

1.Consider the following scenario analysis for Stocks A and B and for the market portfolio (M)

   

Rate of Return

 

State of Economy

Probability of State

Stock A %

Stock B %

Market %

 

 

 

 

 

 

 

Boom

0.1

30

45

    33

 

Good

0.6

12

10

    15

 

Average

0.2

1

-15

-5

 

Bust

0.1

-20

-30

-9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

a)      Calculate the expected rate of return on each stock and the market?                        (15)

Stock A:

 

Expected Rate =  = 30*0.1+12*0.6+1*0.2-20*0.1

= 8.4%

 

Stock B:

 

Expected Rate =  = 45*0.1+10*0.6-15*0.2-30*0.1

= 4.5%

 

Market:

 

Expected Rate =  = 33*0.1+15*0.6-5*0.2-9*0.1

= 10.4%

 

 

b)      Find the standard deviation of returns for each asset?           (15)

Stock A:

 

Standard deviation  =

 

 

 

= 208.2

 

Stock B:

 

Standard deviation  =

 

 

 

= 393

 

 

Market:

 

Standard deviation  =

 

 

 

= 246.6

 

 

2. The risk free rate is 3% and the betas of the stocks are:

Stock               Beta

A                     1.20

B                     0.70

Are the stocks fairly priced?

Find required returns:

A:

 

B:

 

 

Find alphas:

A: Alpha =

B: Alpha =

 

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency