# Chapter 6 Quizzes_Working File (EG).xlsx - Stock A B C AB...

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Stock Exp Return St Dev Beta A 10.0% 20.0% 1.0 B 10.0% 10.0% 1.0 C 12.0% 12.0% 1.4 AB 10.0% 1.00 ABC 10.6667% 1.13

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URI MAT Probability Average Return Expected Return Economy 1 -14.0% -9.0% 0.15 -11.5% -1.7% Economy 2 16.0% 11.0% 0.25 13.5% 3.4% Economy 3 22.0% 15.0% 0.30 18.5% 5.6% Economy 4 7.0% 5.0% 0.20 6.0% 1.2% Economy 5 -2.0% -1.0% 0.10 -1.5% -0.2% Portfolio E(r) 8.25%
Prob x Sq Dev -19.8% 0.04 0.01 5.3% 0.00 0.00 10.3% 0.01 0.00 -2.3% 0.00 0.00 -9.8% 0.01 0.00 Variance 0.01 St Dev 10.4% Deviation from Exp Return Squared Deviation

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Risk Free Rate 2.0% Inflation Rate 2.7% MRP 7.8% Market Return 9.8% Beta 1.6 Ri = 2.0% + 1.6(7.8%) Ri = 17.18%

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Risk Free Rate 2.0% Inflation Rate 3.0% MRP 4.7% Market Return 6.7% Beta 1.1 Ri = 10.17%

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Risk Free Rate 5.00% Inflation Rate MRP Market Return Beta 1.25 Expected Return 12.25% 12.25% = 5% + 1.25MRP 7.25% = 1.25MRP 5.80% = MRP

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Risk Free Rate 6.00% Inflation Rate MRP 5.00% Market Return Beta Expected Return 8.00% 8.00% = 6% + 5.0%b 2.00% = 5.0%b 0.40 = b

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Exp Return Probability Recession 13% 45% 5.9% Normal 6% 50% 3.0% Booming -4% 5% -0.2% 8.65%

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• Fall '19
• Probability theory, Errors and residuals in statistics

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