1.Expected return. A stock’s returns have the following distribution:

Demand for the company’s product| Probability of this demand occurring| Rate of return if this demand occurs| Weak| 0.1| (50%)|
Below average| 0.2| (5%)|
Average| 0.4| 16|
Above average| 0.2| 25|
strong| 0.1| 60|
| 1.0| |

Calculate the stock’s expected return, standard deviation, and the coefficient of variation.

2.Required rate of return. Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of return on an average stock is 13%, and the risk free rate is 7%. By how much does the required return on the riskier stock exceed the required return on the less risky stock?

3.Required rate of return. Suppose rRF =9%, rM = 14% and bi = 1.3

a. What is ri, the required return on stock i?

b.Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri?

c.Now assume rRF remains at 9%, but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would this affect ri?

4.Evaluating risk and return.
Stock X has an expected return of 10%, a beta coefficient of 0.9, and a 35% standard deviation of expected return.
Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 25% standard deviation.
The risk free rate is 6%, and the market risk premium is 5%.

a.Calculate each stock’s coefficient of variation.

b. Which stock is riskier for a diversified investor?

c.Calculate each stock’s required rate of return.

d.On the basis of the two stocks’ expected and required returns, which stock will be more attractive to a diversified investor?...

...Financial analysis Lynn University Analysis of financial position is the assessment of stability, viability, and profitability of a project or business. It is performed using ratios and used in making decisions by top management. The information from the analysis helps the management make decisions regarding investment, lending, and issuance of stocks, purchases, continuation, and discontinuation. The goals of performing financial analysis are to...

...University of Phoenix Material
Role of Financial Accounting Versus Managerial Accounting Matrix
Compare and contrast financial accounting and managerial accounting by answering the following questions in the matrix provided. Cite any sources you use in accordance with APA guidelines.
Term or Concept
Financial Accounting
Managerial Accounting
What is the primary purpose of the accounting system?
The...

...CORPORATE FINANCE
END TERM PROJECT
To study the Financials of ICICI bank, HDFC bank and Axis bank and to conduct Comparative Financial Analysis among them.
UNDER THE GUIDANCE:
Dr. ASHISH GARG
PROGRAM COORDINATOR PGDM (FINANCE)...

...Investors, therefore, are alleged to be better off using more certain, near-term earnings forecasts.
Such reasoning makes no sense, for at least two reasons. First, a key element in understanding a business’s attractiveness involves knowing the set of financial expectations the price represents. The market as a whole has historically traded at a price-to-earnings multiple in the mid-to-high teens. Simple math shows today’s stock prices reflect expectations for value-creating...

...of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?a. $23.11b. $23.70c. $24.31d. $24.93e. $25.57e 8- Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength. |
| |
a. | True |
b. | FalseA |
9- Profitability ratios show the combined effects of liquidity, asset management, and debt management on operating...

...an already well-diversified portfolio, given that Asset's non-diversifiable risk. The model takes into account the asset's sensitivity to non-diversifiable risk i.e., the systematic risk or market risk, symbolized by the quantity beta (β) in the financial market, as well as the expected return of the market and the expected return of a theoretical risk-free asset. In other words, it is a model which explains the relationship between risk and expected return so as to use in the...

...Topic 7 – self attempt tute questions
Chapter 12
6. The DEAR for a bank is $8500. What is the VAR for a 10-day period? A 20-day period? Why is the VAR for a 20-day period not twice as much as that for a 10-day period?
For the 10-day period: VAR = 8500 x [10]½ = 8500 x 3.1623 = $26 879.36
For the 20-day period: VAR = 8500 x [20]½ = 8500 x 4.4721 = $38 013.16
The reason that VAR20 (2 x VAR10) is because [20]½ (2 x [10]½). The interpretation is that the daily effects of...