Finance forum post responses | Business & Finance homework help

I need a 125 word reply to each of the following fourFinance forum post responses forum post (500 words total):

See attached for a more readable copy of the forum post

Forum #1

(Posting early as I am in the process of moving and will not be readily accessible to the internet.)

1.      Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone.

The expected return for Dingaling Telephone would be:

Recession – .30 x -.08 = -.024

Normal – .40 x .13 = .052

Boom – .30 x .23 = .069

Expected Return : -0.024 + 0.052 + 0.069 = 0.0970 or 9.7%.

2.      Using the Using the information in the previous question, calculate the standard deviation of returns. 

To find the standard deviation I used excel to work out the equation, but in general form:

I took the values in security return column subtracted by the expected return squared, with the values in the probability column.

√((-.08, .13 and .23) – 0.097)²(.30, .40, .30) = 0.123048771 or 12.30%

My excel formula was: =SQRT(SUMPRODUCT((C1:C3-D5)^2,B1:B3))

3.      Repeat Questions 1 & 2 assuming that all three states are equally likely. 

Expected Return would be 0.09324 or 9.32% and Standard deviation would be 0.129120942 or 12.91%. I completed both formulas in excel, but the general form would be similar to the previous problem but subbing in 0.333 for all the values in the Probability column rather than the .30, .40 and .30 that are currently there.

Jordan, B., Miller, T., & Dolvin, S. (2012). Fundamentals of investments, valuation and management (6th ed.). New York, NY:  McGraw-Hill. ISBN: 13: 9780073530710

Forum #2

A. Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone.

Recession = .30 X -8% = -0.024         Normal = .40 X 13% = 0.052

Boom = .30 X 23% = 0.069

Expected return = -0.024 + 0.052 + 0.069 = 0.097 or 9.7%

B. Using the information in the previous question, calculate the standard deviation of returns.

= (.30) X (-.08 – 0.097)² + (.40) X (.13 – 0.097)² + (.30) X (.23 – 0.097)²

= .0093987 + .0004356 + .0053067 = .015141

= √ .015141 = .12304 = 12.30%

C. Repeat Question 1 & 2 assuming that all three states are equally likely.

= .30 + .40 + .30 = 1.00/3 = .333

Recession = .333 X -8% = -0.02664   Normal = .333 X 13% = .04329 

Boom = .333 X .23 = 0.07659

Expected return = -0.02664 + .04329 + 0.07659 = .09324 or 9.32%

Standard deviation or return –

= (.333) X (-.08 – .09324)² + (.333) X (.13 – .09324)² + (.333) X (.23 – .09324)²

= 0.009994028 + 0.000449982 + 0.006228198 = 0.016672208

= √0. 016672208 = 0.129120904 = 12.91%

Reference:

Jordan, B., Miller, T., & Dolvin, S. (2012). Fundamentals of investments, valuation and management (6th ed.). New York, NY:  McGraw-Hill. ISBN: 13: 9780073530710

Forum #3

Forum #4

Complete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta of .9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent.

a. What is the expected return on a portfolio that is equally invested in the two assets?

Stock Expected return   = 0.09                         Beta    = 0.9

Bond Expected Return   = 0.04                        Beta    = 0.9

(.09 + .04) / 2   = .065 x 100

Expected Return = 6.50%

b. If a portfolio of the two assets has a beta of .5, what are the portfolio weights?

Stock Expected return   = 0.09                         Beta    = 0.5

Bond Expected Return   = 0.04                        Beta    = 0.5

(0.5 / 0.9) = .5555 -1 = .44444 x 100

Portfolio Weight = 44.44%

c. If a portfolio of the two assets has an expected return of 8 percent, what is its beta?

Stock Expected Return   = .08

Bond Expected Return   = .08

E(Rp)   =  .8 x 0.9

Beta   = .72

d. If a portfolio of the two assets has a beta of 1.80, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.

Stock Expected Return   =   .09              Beta    = 1.8

Bond Expected Return   =   .04               Beta    = 1.8

1.8 / .09   = .20 x 100

Stock Portfolio Weight = 2

1 – (1.8 / .09) = 1- 2 = -1

Bond Portfolio Weight = -1

The portfolio is currently over weighted in stocks and is under weighted in bonds.