Quiz 5 w answers - What is the expected return for the...

This preview shows page 1. Sign up to view the full content.

Quiz 5 BUSI 105: Spring 2008 Name ___________________________________ Use the following information to answer the problems below: A portfolio of stock that tracks the S&P index produces returns of 25% in a strong economy and -5% in a poor economy. The returns for stock of Company Z are 20% in a strong economy and -4% in a poor economy. The likelihood of a strong economy is 60%. Assume that there are only two possible scenarios – a strong economy or a poor economy.
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: What is the expected return for the portfolio of stock? For Stock Z? r market = .60 x 25% + .40 x -5% = 15%+(-2%) = 13% r stockZ = .60 x 20% + .40 x -4% = 12% + (-1.6%) = 10.4% What is the beta of Stock Z? Is Stock Z a defensive stock or an aggressive stock? Beta = 20-(-4) = .8 25-(-5) If the current T-Bill rate is 5%, what is the required return (as estimated using CAPM) for Stock Z? r = 5% + .8(13-5%) = 11.4%...
View Full Document

{[ snackBarMessage ]}

What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern