1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Ratling [72]
3 years ago
5

1. Based on the following information calculate the expected return and standard deviation for two stocks: State of Economy Prob

ability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .15 .04 −.17 Normal .55 .09 .12
Business
1 answer:
Aloiza [94]3 years ago
6 0

The question is incomplete! Complete question along with answer and step by step explanation is provided below.

Question:

Based on the following information calculate the expected return and standard deviation for two stocks:

State of Economy                                    Recession    Normal     Boom

Probability of State of Economy                   .15             .55           0.30

Rate of Return if State Occurs                      

Stock A                                                            .04             .09            .17

Stock B                                                            -.17             .12             .27

Answer:

The expected return of stock A is 10.65%

The expected return of stock B is 12.15%

The standard deviation of stock A is 4.5%

The standard deviation of stock B is 13.92%

Explanation:

The expected return of stock A is given by

E(A) = \sum ROR_{A} \cdot P \\\\E(A)  =  0.04\cdot 0.15 + 0.09 \cdot 0.55 + 0.17 \cdot 0.30 \\\\E(A)  = 0.006 + 0.0495 + 0.051 \\\\E(A)  = 0.1065 \\\\

Therefore, the expected return of stock A is 10.65%

The expected return of stock B is given by

E(B) = \sum ROR_{B} \cdot P \\\\E(B)  =  -0.17\cdot 0.15 + 0.12 \cdot 0.55 + 0.27 \cdot 0.30 \\\\E(B)  = -0.0255 + 0.066 + 0.081 \\\\E(B)  = 0.1215 \\\\

Therefore, the expected return of stock B is 12.15%

The standard deviation of stock A is given by\sigma_A = \sqrt{\sum (ROR_{A} -E(A))^2 \cdot P} \\\\\sigma_A = \sqrt{(0.04 -0.1065)^2 \cdot 0.15 + (0.09 -0.1065)^2 \cdot 0.55 + (0.17 -0.1065)^2 \cdot 0.30} \\\\\sigma_A = \sqrt{0.000663337 + 0.000149737 + 0.00120967} \\\\\sigma_A = 0.045Therefore, the standard deviation of stock A is 4.5%

The standard deviation of stock B is given by\sigma_B = \sqrt{\sum (ROR_{B} -E(B))^2 \cdot P} \\\\\sigma_B = \sqrt{(-0.17 -0.1215)^2 \cdot 0.15 + (0.12 -0.1215)^2 \cdot 0.55 + (0.27 -0.1215)^2 \cdot 0.30} \\\\\sigma_B = \sqrt{0.012745 + 0.0000012375 + 0.00661567} \\\\\sigma_B = 0.1392Therefore, the standard deviation of stock B is 13.92%

You might be interested in
A company reported net income of $200,000 during 2019. The company reported depreciation expense of $35,000, patent amortization
OLga [1]

Answer:

The correct answer is B

Explanation:

The company’s cash flow from operating activities for the year 2019 is computed as follows;

Net income $200,000

Add:

Depreciation 35,000

Amortization of patent 10,000

loss on the sale of equipment 5,000

Total cash provided by operating activities $250,000

*Depreciation expense, amortization expense and loss on sale on equipment are all non cash transaction which cause a decrease on net income. Thus if we want to know the actual cash activities for the year, we have to add it back to the Net income to arrive the correct answer.

5 0
3 years ago
As of January 1, Year 2, Room Designs Inc. had a balance of $9,900 in Cash, $3,500 in Common Stock, and $6,400 in Retained Earni
dexar [7]

Answer:

What did the company purchase that resulted in the cash outflow from investing activities?

It purchases Land for 16,500

Explanation:

The investing activities outflow will be for the purchase of long tem assets in cash.

The complete cash outflow for investing activities is explain it through the land account:

cash outflow: 16,500

land:               16,500

There are no other long-term assets which can explain the variance plus, the land account covers the amount entirely.

6 0
2 years ago
Chris has been offered a seven-year bond (face value $1,000) issued by Bayley Ltd at a price of $943.22. The bond has a coupon r
ZanzabumX [31]

Answer:

As the actual price of such bonds should be $950.51 and the bonds are offered at a lower price, the bonds should be bought at the offered price.

Explanation:

To determine whether the bonds should be bought at the given price or not, we first need to calculate the price of the bond. The formula for the price of the bond is attached.

The interest payed by the bonds can be treated as an annuity.

The semiannual rate will be = 9% / 2 = 4.5%

The number of semi annual payments will be = 7 * 2 = 14

The YTM expressed semi annually will be (r) = 10% / 2 = 5%

Semi annual coupon payment or C = 1000 * 0.045 = 45

Bond Price = 45 * [(1 - (1+0.05)^-14) / 0.05] + 1000 / (1+0.05)^14

Bond Price = 950.5068 rounded off to $950.51

As the actual price of such bonds should be $950.51 and they are offered at a lower price, the bonds should be bought at the offered price.

5 0
2 years ago
Dividends on Preferred and Common Stock Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georgia. Peca
Sergio039 [100]

Answer:

Year 1, $24,000; Year 2, $72,000; Year 3, $108,000; Year 4, $138,000; Year 5, $168,000; and Year 6, $210,000.

30,000 shares of 2% preferred stock $100 par

100,000 shares of common stock $25 par

dividends distributed per preferred stock $2 x 30,000 stocks = $60,000

                             Year        Year        Year        Year         Year         Year

                                1               2             3              4              5               6

total dividends 24,000   72,000   108,000  138,000   168,000   210,000

<u>distributed                                                                                                          </u>

to preferred     24,000   72,000    84,000    60,000     60,000    60,000

<u>stocks                                                                                                                 </u>

per preferred      0.80        2.40        2.80           2               2              2

<u>stock                                                                                                                   </u>

to common            0             0         20,000    78,000   108,000   150,000

<u>stocks                                                                                                                 </u>

per common            0              0          $0.20       $0.78     $1.08        $1.50

<u>stock                                                                                                                   </u>

7 0
3 years ago
In the late 1930s management at Atalanta Industries agreed to hire only those workers who were already members of the Electrical
Alex73 [517]

Answer:

Closed shop

Explanation:

A closed shop involves an agreement where the employer only recruits Union members. The workers must remain Union members as long as they work with the employer.

Legality of closed shop varies from country to country.

I'm this instance, Atalanta Industries agrees to hire only those workers who were already members of the Electrical Union. This is a closed shop situation.

Closed shop was declared illegal by the Taft-Hartley act in 1947.

7 0
3 years ago
Read 2 more answers
Other questions:
  • You have graduated from college and, after working hard for ten years, have scraped enough money together to make a down payment
    7·1 answer
  • An economy in which more effort is devoted to the production of services than to the production of goods is called the:
    14·1 answer
  • Jennifer gets 5 utils from consuming her first slice of pizza, 4 utils from the second slice, 3 utils from the third, etc. Each
    9·1 answer
  • Pollachek Co. purchased land as a factory site for $430000. The process of tearing down two old buildings on the site and constr
    8·1 answer
  • What are examples of Human Services careers? Check all that apply. Chief Executive Receptionist Hairstylist Funeral Director Chi
    12·2 answers
  • In order for a taxpayer to be able to deduct the loss on a business activity in which she is an owner, she must demonstrate that
    7·1 answer
  • Considering the following labor markets. A slightly different feature of labor markets is that employees are the suppliers of la
    14·1 answer
  • The following present value factors are provided for use in this problem.
    11·1 answer
  • 3.
    8·1 answer
  • stereo corp. produces radios. the following information on inventory and production pertains to the year 2017. total manufacturi
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!