Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please show the formulas and full work without using excel. You're trying to calculate the expected return, risk premium, variance, and standard deviation of stock

image text in transcribedimage text in transcribedimage text in transcribedPlease show the formulas and full work without using excel.

You're trying to calculate the expected return, risk premium, variance, and standard deviation of stock XYZ. You believe that XYZ has a 20% chance of great performance over the next year, in which case it will generate a 25% stock return. You believe that there is a 30% chance that XYZ will have good performance, and generate a return of 20%. You believe there is a 40% chance that XYZ will have OK performance, and generate a return of 10%, and you believe there is a 10% chance that XYZ will have poor performance, and generate a negative return = -5%. The risk free rate is 5%. What are the expected return, risk premium, variance, and standard deviation of returns for XYZ? You're also trying to calculate the expected return, risk premium, variance, and standard deviation of stock ABC. You believe that ABC has a 10% chance of great performance over the next year, in which case it will generate a 50% stock return. You believe that there is a 60% chance that ABC will have good performance, and generate a return of 15%. You believe there is a 30% chance that ABC will have poor performance, and generate a negative return = -15%. The risk free rate is 5%. What are the expected return, risk premium, variance, and standard deviation of returns for ABC? If we purchased a portfolio by purchasing $300 of XYZ stock and $1200 of ABC stock, what would be the portfolio's expected return, variance, and standard deviation if the two stocks have a correlation of 0.30

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

Step: 3

blur-text-image

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

The Concepts And Practice Of Mathematical Finance

Authors: Mark S. Joshi

1st Edition

0521823552, 9780521823555

More Books

Students also viewed these Finance questions

Question

How does the concept of hegemony relate to culture?

Answered: 1 week ago