a) There is a 52% probability of a below average economy and a 40% probability of an average economy. If there is a below average economy stocks A and B will have returns of 8% and -4%, respectively. If there is an average economy stocks A and B will have returns of 15% and 16%, respectively. Calculate the expected returns and standard deviations of stocks A and B.
b) There is a 35% probability of an average economy and a 45% probability of an above average economy. You invest 24% of your money in Stock S and 44% of your money in Stock T. In an average economy the expected returns for Stock S and Stock T are 14% and 6%, respectively. In an above average economy the the expected returns for Stock S and T are 13% and 11%, respectively. What is the expected return for this two stock portfolio?
c) You are invested 14% in growth stocks with a beta of 1.4, 12% in value stocks with a beta of 1, and 66% in the market portfolio. What is the beta of your portfolio?
d) An analyst gathered the following information for a stock and market parameters: stock beta = 0.6; expected return on the Market = 10.5%; expected return on T-bills = 3.6%; current stock Price = $6.99; expected stock price in one year = $11.40; expected dividend payment next year = $1.28. Calculate the required return and expected return for this stock.
e) The expected return for the market next period is 4.8% and the risk-free rate is 3%. Stock Z has a beta of 1 and an expected return of 8.5%. What is the reward-to-risk ratio for the market portfolio and Stock Z.