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Expected Return & Ceta of Stock

Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate expected return of this investment?

11%
17%
16.60%
10%

Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, which of the following statements is true?

You would invest more in Stock A than you would invest in Stock B
You would invest approximately $96,000 in Stock A and $154,000 in Stock B
You would invest the same amount in each stock
Regardless of your investment choices, you cannot obtain a return of 12%.

The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. What is the beta of Stock I and II respectively?

0.6 and 1.2
1.2 and 0.6
1.2 and 0.4
Cannot be determined with the information given

Which statements are true regarding risk? Select all that apply:

The expected return is usually not the same as the actual return
A key to assessing risk is determining how much risk an investment adds to a portfolio
Some risks cannot be decreased or mitigated by the financial manager.
The higher the risk, the higher the return investors require for the investment

Solution Preview

Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate expected return of this investment?

=((1+15%)*(1+4%)*(1-13%)*(1+34%)*(1+17%))^0.2-1
10.28%
Answer 10%

Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal ...

Solution Summary

This post shows how to calculate expected return and beta of stock with calculations clearly displayed.

$2.19