What is the expected return on this stock given the following information? Multi
ID: 2613906 • Letter: W
Question
What is the expected return on this stock given the following information?
Multiple Choice
-8.07 percent
-6.00 percent
-5.20 percent
-5.70 percent
-7.69 percent
A portfolio consists of the following securities. What is the portfolio weight of stock A?
Multiple Choice
0.389
0.451
0.336
0.529
0.445
What is the variance of the expected returns on this stock?
Multiple Choice
50.03
22.75
18.75
48.97
31.53
An investor owns a security that is expected to return 10 percent in a booming economy and 3 percent in a normal economy. The overall expected return on the security is 5.45 percent. Given there are only two states of the economy, what is the probability that the economy will boom? Multiple Choice 45 percent 28 percent 35 percent 41 percent 33 percent
State of the Economy Probability E(R) Boom 0.4 15 % Recession 0.6 -20 %Explanation / Answer
1.Expected return=Respective return*Respective probability
=(0.4*15)+(0.6*-20)
=(6%)(Negative).
2.
Total value of A=(200*48)=$9600
Total value of B=(100*33)=$3300
Total value of C=(250*21)=$5250
Total value =$18150
Hence portfolio weight of A=(9600/18150)
=0.529(Approx).
3.
Expected return=(0.35*18)+(0.65*8)
=11.5%
Standard deviation=[Total Probability*(Return-Mean)^2/Total Probability]^(1/2)
=4.77(Approx)
Hence variance=Standard deviation^2
=22.75
4.
Let probability of boom=x
Hence probability of normal economy=(1-x)
Expected return=(10*x)+(3*(1-x)
5.45=10x+3-3x
(5.45-3)=7x
x=(2.45/7)
=35%
Probability Return Probability*(Return-Mean)^2 0.35 18 0.35*(18-11.5)^2=14.7875 0.65 8 0.65*(8-11.5)^2=7.9625 Total=22.75%Related Questions
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