Explore BrainMass

Explore BrainMass

    Finance questions

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    See Attachment.
    You are given the following long-run annual rates of return for alternative investments:

    U.S. Gov't T-bills 2.25%
    Large-cap common stock 7.50%
    Long-term corporate bonds 4.85%
    Long-term Gov't bonds 4.35%
    Small-capitalization common stock 9.50%

    The annual rate of inflation is 1.25%. What is the real rate of return (hint: use formula on page 17)
    The following are the monthly rates of return for ABC Corporation and XYZ Corporation (show work for partial credit):
    Note: depending on your statistical approach (i.e. Excel formulas or table) I will provide credit assuming I can tell which approach was used.
    Month ABC XYZ
    1 0.03 0.01
    2 0.05 0.025
    3 0.01 0.03
    4 -0.005 0.015
    5 -0.025 -0.02
    6 0.35 -0.01

    a) what is the geometric mean monthly return for each stock (recall, the returns will need to be converted to non-negative numbers)

    b) what is the standard deviation of returns for both (please note: if not using Excel's formula to arrive at Standard Deviation use n-1 in denominator)?
    ABC
    XYZ
    c) what is the covariance between the rates of return (remember to use n-1 if deriving through a table)?
    COV
    d) what is the correlation coefficient between the rates of return?

    e) would these two stock offer a good chance for diversification? Why or why not?
    Compute the beta coefficient for General Electric

    The following are the historic returns for Monte Company:

    Year Monte Market index
    1 23 9
    2 5 9
    3 -9 6
    4 3 -5
    5 12 12
    6 9 13

    a) what is the correlation coefficient between Monte and the Market Index?

    b) what is the standard deviation for the company and the index?

    c) what is the beta for Monte Company?

    © BrainMass Inc. brainmass.com June 3, 2020, 11:26 pm ad1c9bdddf
    https://brainmass.com/business/capital-asset-pricing-model/finance-questions-279875

    Attachments

    Solution Summary

    The solution explains some finance questions relating to real rate of return; beta coefficient for GE and Monte & Market Index

    $2.19

    ADVERTISEMENT