Question
Problem 3 Scenario Analysis (33 points) Use the following scenario analysis for stocks X and Y to answer the questions. Round to the nearest 1/100
Problem 3 Scenario Analysis (33 points)
Use the following scenario analysis for stocks X and Y to answer the questions. Round to the nearest 1/100 of 1% (i.e., 15.07%).
Bear | Normal | Bull | |
| Market | Market | Market |
Probability | 35.00% | 55.00% | 10.00% |
Stock X | -20.00% | 11.00% | 28.00% |
Stock Y | -17.00% | 16.00% | 49.00% |
3.a) What are the expected rates of return for stocks X and Y (9 points)?
3.b) What are the standard deviations for of returns for stocks X and Y (8 points)?
3.c) If the riskfree rate of return is 2.50%, what are the Sharpe Ratios for stocks X and Y (8 points)? (Please assume that the standard deviations of the excess returns are the same as the standard deviations of returns calculated in part b.)
3.d) Assume you have a $200,000 portfolio and you invest $75,000 in stock X and the remainder in stock Y. What is the expected return for this portfolio (8 points)?
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