Based on the following historical returns (sample) data; calculate the average return and the standard deviation of returns for Stock X.
YEAR Stock X Rate of Return
201a -5%
201b 10%
201c 20%
201d 30%
201e 25%
- Based on the following data; calculate the expected return and the standard deviation of returns for Stock A.
State of the Economy Probability Stock A Rate of Return
Recession 0.2 -20%
Normal Growth 0.65 20%
Boom 0.15 40%
Based on the following data;
State of the Economy Probability Stock A Rate of Return Stock B Rate of Return
Recession 0.2 4% -20%
Normal Growth 0.65 8% 20%
Boom 0.15 16% 60%
Calculate the expected return and the standard deviation on the portfolio, where the portfolio is formed by investing 50% of the funds in Stock A and the rest in Stock B.
4.A firm’s stock has a beta of 25; the expected return on the market is 12%; and the risk-free
rate is 4%. What is the expected rate of return on this stock? (Use CAPM)
5.A firm’s stock has a beta of 8; the expected return on the market is 14%; and the risk-free
rate is 4%. What is the expected rate of return on this stock? (Use CAPM)
6.Stock A has a beta of 1.4 and stock B has a beta of 0.8; if a portfolio is formed using the two stocks where 50% of the funds are invested Stock A and 50% in Stock B; calculate the beta of the poertfolio
