Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please help with question e! thx Assume the market risk premium is 5%, and the risk-free rate is 2%. You have estimated the return rates

please help with question e! thx

image text in transcribed

Assume the market risk premium is 5%, and the risk-free rate is 2%. You have estimated the return rates of Stock A and Stock B under different state of economy as follows, State of Economy Probability of The State of Economy Returns if State Occurs Stock B Recession Normal Boom 0.2 0.3 0.5 Stock A -0.03 0.08 0.15 -0.01 0.05 0.1 a) What are the expected return rates of the two stocks? (4 marks) b) What is the standard deviation of return rate of Stock A? (3 marks) c) What is the Beta of Stock A, and what is the Beta of Stock B? (4 marks) d) Based on your answer in the previous parts, and given the standard deviation of returns of Stock B is 0.0424, which stock is riskier in terms of total risk, and which stock is risker in terms of systematic risk? (2 marks) e) Assume you invest 60% in Stock A and 40% in Stock B in a portfolio. What is the expected return of your portfolio, and what is the standard deviation of the return rate of your portfolio? (6 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Master The Art Of House Flipping

Authors: Livia V. Velez

1st Edition

979-8865806561

More Books

Students also viewed these Finance questions