Finance forum post responses | Business & Finance homework help

I need a 125 word reply to each of the following four 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.

State of Economy

Probability of State of the Economy

Security Return if State Occurs

Recession

.30

-8%

Normal

.40

13

Boom

.30

23


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

 

 

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

The expected return on a portfolio that is equally invested would be:

0.09 + 0.04 / 2 = 0.065 or 6.5%

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

The portfolio weights would be:

0.5 / 0.9 – 1 = 0.444444 or 44.44%

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

The beta would be:

0.8 x 0.9 = 0.72

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.

The portfolio weights would be:

1.80 / 0.9 = 2

1-(1.80 / 0.9) = -1

The interpretation of the weights for the two assets would be that they seem to be over invested in stocks and in the negatives for the other which would be a risk free asset. The portfolio weight would represent that the stocks are over invested at 200% and -100% for risk free. For the risk free investment you could be borrowing at the risk free rate in order to buy more of that particular stock.

 

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.

 







Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 10% with the coupon code: best10