Investment Calculation

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Sheet1

Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
  State of   Economy Probability of Security Return
State of Economy If State Occurs
  Recession .25 –6 %
  Normal .20 11
  Boom .55 20
Standard deviation %=

Sheet2

Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. Assuming that all three states are equally likely. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
  State of Security Return
  Economy If State Occurs
  Recession –7 %
  Normal 9
  Boom 21
 Standard deviation  %

Sheet3

Problem 11-4
Security Returns If State Occurs
  State of Probability of
  Economy State of Economy Roll Ross
  Bust 0.3 -16 % 14 %
  Boom 0.7 21 5
Calculate the expected returns for Roll and Ross by filling in the following table (verify your answer by expressing returns as percentages as well as decimals): (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your E(R) answers to 2 decimal places and your Product answers to 4 decimal places. Omit the “%” sign in your response.)
Roll Ross
  State of   Economy Probability of Return If Product    Return if Product
State of Economy State Occurs  State Occurs
  Bust 0.3 % %
  Boom 0.7 % %
E(R) = % E(R) = %

Sheet4

Problem 11-6
Security Returns
If State Occurs
  State of Probability of
  Economy State of Economy Roll Ross
   Bust 0.2 -12 % 13 %
   Boom 0.8 30 6
Calculate the expected return on a portfolio of 40 percent Roll and 60 percent Ross by filling in the following table: (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
State of Probability of Portfolio Return Product
Economy State of Economy If State Occurs
   Bust  .20 % %
   Boom  .80 % %
E(RP) = %

Sheet5

Problem 11-8
Consider the following information:
Rate of Return If State Occurs
State of Probability of
Economy State of Economy Stock A Stock B
  Recession 0.3 0.06 –.20
  Normal 0.3 0.11 0.11
  Boom 0.4 0.15 0.28
a. Calculate the expected return for the two stocks. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
  Expected return for A  %
  Expected return for B  %
b. Calculate the standard deviation for the two stocks. (Do not round your intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
  Standard deviation for A  %
  Standard deviation for B  %

Sheet6

Problem 11-9
Consider the following information:
Rate of Return if State Occurs
State of Probability of
Economy State of Economy Stock A Stock B Stock C
  Boom .30 .19 .43 .24
  Good .20 .17 .17 .14
  Poor .10 –.04 –.14 .03
  Bust .40 –.16 –.22 –.11
a. Your portfolio is invested 25 percent each in A and C, and 50 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
  Expected return  %
b-1. What is the variance of this portfolio? (Do not round intermediate calculations. Round your answer to 5 decimal places.)
  Variance of this portfolio
b-2. What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
  Standard deviation  %

Sheet7

Problem 11-10
Fill in the missing information in the following table. Assume that Portfolio AB is 70 percent invested in Stock A. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
Annual Returns on Stocks A and B
  Year Stock A Stock B Portfolio AB
  2009 15.5 % 23.5 % %
  2010 34.8 % –34.7 % %
  2011 –16.6 % 44.7 % %
  2012 24.9 % 17.1 % %
  2013 15.2 % 27.3 % %
  Average return % % %
  Standard deviation % % %

Sheet8

Problem 11-11
Given the following information, calculate the expected return and standard deviation for a portfolio that has 25 percent invested in Stock A, 32 percent in Stock B, and the balance in Stock C. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
Returns
State of Probability of
  Economy State of Economy Stock A Stock B Stock C
  Boom 0.3 10 % 19 % 20 %
  Bust 0.7 11 0 –11
  Expected return  %
  Standard deviation  %

Sheet9

Problem 12-1
A stock has an expected return of 13.8 percent, the risk-free rate is 3.4 percent, and the market risk premium is 9.1 percent. What must the beta of this stock be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
  Beta

Sheet10

A stock has an expected return of 11.2 percent, its beta is .90, and the risk-free rate is 3.6 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
  Expected return  %

Sheet11

Problem 12-3
A stock has an expected return of 10.5 percent, a beta of 1.30, and the expected return on the market is 9.20 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
  Risk-free rate %

Sheet12

Problem 12-4
A stock has a beta of 1.8 and an expected return of 15.1 percent. If the risk-free rate is 5.0 percent, what is the market risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
  Market risk premium  %

Sheet13

Problem 12-5
You own a stock portfolio invested 20 percent in Stock Q, 33 percent in Stock R, 45 percent in Stock S, and 2 percent in Stock T. The betas for these four stocks are 1.5, .5, 1.6, and .8, respectively. What is the portfolio beta? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
  Portfolio beta

Sheet14

Problem 12-6
You own 500 shares of Stock A at a price of $65 per share, 445 shares of Stock B at $85 per share, and 400 shares of Stock C at $42 per share. The betas for the stocks are .7, 1.9, and .8, respectively. What is the beta of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimalplaces.)
  Beta

Sheet15

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.21, and the total portfolio is exactly as risky as the market, what must the beta be for the other stock in your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
  Beta

Sheet16

Problem 12-8
A stock has a beta of 1.20, the expected return on the market is 14 percent, and the risk-free rate is 4.50 percent. What must the expected return on this stock be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)
  Expected return
 
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