You are considering a particular investment, the performance of which is dependent upon the overall economy. If the economy is strong, you expect a return on your investment of 20%. If the economy is weak, you expect a return on your investment of 15%. If you believe that there is a 65% chance that the economy will be strong and a 35% chance that it will be weak, what is the expected return on your investment? (Show answer as a percentage (%) to 2-decimal places xx.xx) State of Economy Probabilities Expected Return Strong 65% 20% Weak 35% 15% Explain what is meant by the statement that investors are risk averse. Edit View Insert Format Tools Table 12pt Paragraph B I U A | 0 Dz Target stock is currently selling for $175.40 a share. It is expected to reach a price of $188.20 a year from now. You expect the company to pay a dividend of $2.72 in the next year and the stock's beta is 0.98. The risk-free rate of return is 4.5% and the market rate of return is 11.5%. CAPM states that: RR = RF + B(RM - RF). b. Compute the required return for an investment in Target stock. [Show answer to 2-decimal places] [Hint: returns are in percentages] Target stock is currently selling for $175.40 a share. It is expected to reach a price of $188.20 a year from now. You expect the company to pay a dividend of $2.72 in the next year and the stock's beta is 0.98. The risk-free rate of return is 4.5% and the market rate of return is 11.5%. CAPM states that: RR = RF + B(RM - RF). c. Compute the expected return on an investment in Target stock for the coming year. [Show answer to 2-decimal places xx.xx] Images Target stock is currently selling for $175.40 a share. It is expected to reach a price of $188.20 a year from now. You expect the company to pay a dividend of $2.72 in the next year and the stock's beta is 0.98. The risk-free rate of return is 4.5% and the market rate of return is 11.5%. CAPM states that: RR = RF + B(RM - RF). d. Based solely on your computations, should you invest in Target stock? Explain, making reference to any relevant data. Edit View Insert Format Tools Table 12pt Paragraph BIU T | > Bol > > Aw > | 0 20 : Smokey's Burger Corporation has generated a mean return of 13% with a standard deviation of 9%. a. If you wanted to be 95% certain of your expected return next year, what range of possible returns would you expect to earn? Show range of returns to 2 decimal places xx.xx BIU A A Edit View Insert Format Tools Table 12pt Paragraph Dz Dz Rusty's is a competitor of Smokey's. Rusty's stock has generated a mean return of 19% with a standard deviation of 6%. Which of the stocks represents the greater financial risk? Illustrate by computing the 95% certain expected range of returns for Rusty's and compare the results with those for Smokey's. Edit View Insert Format Tools Table 12pt v Paragraph | BIU A V 131 fill Distinguish between market risk and specific risk. B I U A T | Q Edit View Insert Format Tools Table 12pt Paragraph Dz Why/how does diversification help an investor manage risk? Edit View Insert Format 12pt Paragraph Tools Table BI U A T v