Am. 135. Consider the following scenario analysis:Rate of ReturnScenarioRecessionNormal economyBoomProbabilityStocks0.20-5%Bonds17%0.5020%1 9%0.3029%7%a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?b. Calculate the expected rate of return and standard deviation for each investment.c. Which investment would you prefer?Complete this question by entering your answers in the tabs below.Required A Required BRequired CIs it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?< Required ARequired B >

σ bonds= (0.20×(17%−10%) 2)+(0.50×(9%−10%) 2)+(0.30×(7%−10%) 2)�bonds=(0.20×49)+(0.50×1)+(0.30×9)σ…

Answered: Consider the following scenario…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.30 −5 % 18 % Normal economy 0.60 19 % 7 % Boom 0.10 24 % 7 % b. Calculate the expected rate of return and standard deviation for each investment.
A. Realized return B. Ex ante alpha C. Ex post alpha D. Realized beta Question 7 (MCQ) One example of a build up model is: A. A macroeconomic model B. Capital Asset Pricing Model (CAPM) C. Bond yield plus risk premium D. Fama and French model
Consider the following scenario analysis: Scenario Probability Stocks Bonds Recession 0.30 -6 % +15% Normal Economy 0.30 +14 + 7 Boom 0.40 +26 +5 Calculate the expected rate of return and standard deviation for each investment? Which investment would you prefer?
QUESTIONS: 1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium is 6% whereas the beta of HelloFresh SH. stock is 1.8, compute the required rate of return using CAPM. 2) Compute the value of each investment based on your required rate of return and interpret the results comparing with the market values. 3) Which investment would you select? Explain why using appropriate financial jargon (language). 4) Assume HelloFresh SH's CFO Mr. Christian Gaertner expects an earnings upturn resulting increase in growth (rate) of 1%. How does this affect your answers to Question 2 and 3? 5) AACSB Critical Thinking Questions: A) Companies pay rating agencies such as Moody's and S&P to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. Why do you think they do it? (Textbook page: 198) B) What are the difficulties in using the PE ratio to value stock?…
Consider the following scenario analysis: Scenario Probability Rate of Return Stocks Bonds Recession 0.20 -6% 17% Normal economy 0.60 19% 9% Boom 0.20 30% 5% Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? Calculate the expected rate of return and standard deviation for each investment. Which investment would you prefer?
The payoff table below indicates the returns (in RM thousands) of investments in stock, bond and fixed deposit under different economic situations. Type of Investment Stock Bond Fixed Deposit Table 1 Economic Situation Good 150 50 45 Stable 60 40 45 Poor -30 36 45 The probabilities of good, stable and poor economy are 0.3, 0.5 and 0.2, respectively. What is the best investment based on the expected monetary value criterion? Draw a decision tree.
Consider the following scenario analysis: Rate of Return Stocks Scenario Bonds Probability 0.20 Recession -6% 18% Normal economy 0.50 19% 11% Boom 0.30 26% 8% a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? O No Ⓒ Yes b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) Expected Rate of Standard Deviation Return Stocks 16.1 % % Bonds 9.7 % % c. Which investment would you prefer? Bond Which investment would you prefer? Stock
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