There are two stocks in the market, Stock A and Stock B. The price of Stock A today is $76. The price of Stock A next year will be $65 if the economy is in a recession, $88 if the economy is normal, and $98 if the economy is expanding. The probabilities of recession, normal times, and expansion are .21, .59, and .20, respectively. Stock A pays no dividends and has a correlation of .71 with the market portfolio. Stock B has an expected return of 14.1 percent, a standard deviation of 34.1 percent, a correlation with the market portfolio of .25, and a correlation with Stock A of .37. The market portfolio has a standard deviation of 18.1 percent. Assume the CAPM holds. a-1.What is the return for each state of the economy for Stock A? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a- What is the expected return of Stock A? (Do not round intermediate calculations 2. and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a- What is the variance of Stock A? (Do not round intermediate calculations and round 3. your answer to 4 decimal places, e.g., .1616.) a- What is the standard deviation of Stock A? (Do not round intermediate calculations 4. and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a- What is the beta of Stock A? (Do not round intermediate calculations and round 5. your answer to 3 decimal places, e.g., 32.161.) a- What is the beta of Stock B? (Do not round intermediate calculations and round 6. your answer to 3 decimal places, e.g., 32.161.)
There are two stocks in the market, Stock A and Stock B. The price of Stock A today is $76. The price of Stock A next year will be $65 if the economy is in a recession, $88 if the economy is normal, and $98 if the economy is expanding. The probabilities of recession, normal times, and expansion are .21, .59, and .20, respectively. Stock A pays no dividends and has a correlation of .71 with the market portfolio. Stock B has an expected return of 14.1 percent, a standard deviation of 34.1 percent, a correlation with the market portfolio of .25, and a correlation with Stock A of .37. The market portfolio has a standard deviation of 18.1 percent. Assume the CAPM holds. a-1.What is the return for each state of the economy for Stock A? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a- What is the expected return of Stock A? (Do not round intermediate calculations 2. and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a- What is the variance of Stock A? (Do not round intermediate calculations and round 3. your answer to 4 decimal places, e.g., .1616.) a- What is the standard deviation of Stock A? (Do not round intermediate calculations 4. and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a- What is the beta of Stock A? (Do not round intermediate calculations and round 5. your answer to 3 decimal places, e.g., 32.161.) a- What is the beta of Stock B? (Do not round intermediate calculations and round 6. your answer to 3 decimal places, e.g., 32.161.)
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 15P
Related questions
Question
Pls correct approach.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning