Suppose an investor buys 20 share of a particular stock at R10 per share and sell them all a year from now. The possibilities in one year's time are either, the stock will be worthless, with probability 0.2, you will break even, with probability 0.5 or the value of the stock will double, with probability 0.3. Let a random variable X the investor's gain from buying the 20 shares. The variance of gains from purchasing the stock is O A. 1400 O B. 19600 C. 35476 ОD. 14420

Suppose an investor buys 20 share of a particular stock at R10 per share and sell them all a year from now. The possibilities in one year's time are either, the stock will be worthless, with probability 0.2, you will break even, with probability 0.5 or the value of the stock will double, with probability 0.3. Let a random variable X the investor's gain from buying the 20 shares. The variance of gains from purchasing the stock is O A. 1400 O B. 19600 C. 35476 ОD. 14420

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter6: Risk And Return

Section: Chapter Questions

Problem 14P: You have observed the following returns over time: Assume that the risk-free rate is 6% and the...

See similar textbooks

Similar questions

Suppose an investor buys 20 share of a particular stock at R10 per share and sell them all a year from now. The possibilities in one year's time are either, the stock will be worthless, with probability 0.2, you will break even, with probability 0.5 or the value of the stock will double, with probability 0.3. Let a random variable X the investor's gain from buying the 20 shares. The variance of gains from purchasing the stock is Question 6 OA. 19600 О в. 1400 OC. 14420 O D. 35476 « » A Moving to another question will save this response. 09:08 辰 ENG 2022/03/03 Pr here to search T430 lenovo F2 F3 F4 F5 F6 F7 F8 F10 F11 F12 Home End Insert Delet F1 & Backs 2 3 5 € 7 9 T Y F G J K L B N P 01 IM * C0 今4 %23
You model a stock price S(t) using a stochastic process, with t measured in years. Your model implies that the risk-neutral distribution for the stock price at t = 4 has probability density function fs(4)(x) = x-40 {} 50 if 40 < x < 50 else Assume that interest is compounded continuously at nominal rate r = : 2.0%. Calculate the price of the stock at time 0 to the nearest pence. Do not enter the pound sign.
Assume that the future stock price in T years is given by ST = S0 exp[(μ – 0.5σ2)T + (σ√T)ε], where the current stock price S0=105, expected return µ=0.15, volatility σ=0.80 and ϵ is a standard normal random variable. What is the price level in 6 months such that there is only a 1% chance of the actual value being higher? a. 360 b. 26 c. 105 d. 570
Suppose Tom invests W0=$10000W0=$10000 on a stock. The monthly return RR follows a normal distribution with mean 0.1 and variance 0.22, i.e. R∼N(0.1,0.22). Find the 95% VaR on the investment in one month.
You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
Suppose there is a risk-free asset whose return is 2% and that the market portfolio has an expected return of 10%. The standard deviation of the market portfolio is given 25% 1). Consider an asset that currently sells for $30 and has βi = 0.6. Suppose the asset pays a dividend of $1.5 and the expected price at the end of the period is $30.5. Calcuate the α of this asset. Is it over- or underpriced?2). Consider an asset with βi = 1.25 and expected return of 11%. Can an investor use this asset to make a risk-free profit through arbitrage? Explain your answer
Suppose risk-free rate of return = 2%, market return = 7%, and Stock B’s return = 11%. a. Calculate Stock B’s beta. b. If Stock B’s beta were 0.80, what would be its new rate of return?
For the coming year you have determined that the following possibilities are most likely for stock A: Economic State Probability Return Good 0.60 20 Bad 0.40 1 What is the expected return for stock A?
Stock A has a beta coefficient = 1.12. calculate the expected rate of return of the stock A given that the risk-free rate is 0.36 and the annual return is 0.12. give your answer in 0.000.
You know that the prices on a stock market follow a lognormal geometric random walk. Given the following parameters: 0,15 o? = 0,04, calculate: The expected log return for 5 years The median log return for 10 years The median gross 10-year return If the stock price starts at $100, what is the expected price after 10 years?
For an investment in a stock, the probability of the return being -10.0% is 0.3, 10.0% is 0.4, and 30.0% is 0.3. Given the probability distributions, what is the expected rate of return for the investment?Choices:A. 10.00%B. 9.50%C. 15.00%D. 12.50%E. 13.00%
Suppose the returns on a small stock are normally distributed. The historical average return is 18 percent, and the standard deviation is 6 percent. What is the probability that your return on this stock will be no less than 12 percent in a given year? What range of returns would you expect to see 95 percent of the time? What range would you expect to see 99 percent of the time?