Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / 1
1.Suppose you want to be a millionaire in 10 years. How much will you at least have to put aside each year in order to become one? Assume that the interest rate is 5% and your first deposit is at the end of this year.
2.Return if State Occurs Stock B .20 State of Economy Recession Normal Boom Probability of State of Economy .20 .50 .30 Stock A -15 .20 .60 .30 .40 Q1: What are the expected returns and standard deviations for these two stocks? Security Cooley Inc. Moyer Company Beta 1.8 1.6 Expected Retum 22.00% 20.44 Q2: If the risk-free rate is 7 percent, are these securities correctly priced? What would the risk-free rate have to be if they are correctly priced?
1.
Future value of annuity=annuity[(1+rate)^time period-1]/rate
1,000,000=annuity*[(1.05)^10-1]/0.05
1,000,000=annuity*12.57789254
Annuity=1,000,000/12.57789254
=$79504.57(approx)
2.
| Stock A | |||||
| Scenario | Probability | Return% | =rate of return% * probability | Actual return -expected return(A)% | (A)^2* probability |
| Recession | 0.5 | -15 | -7.5 | -35.5 | 0.0630125 |
| Normal | 0.5 | 20 | 10 | -0.5 | 0.0000125 |
| Boom | 0.3 | 60 | 18 | 39.5 | 0.0468075 |
| Expected return %= | sum of weighted return = | 20.5 | Sum=Variance Stock A= | 0.10983 | |
| Standard deviation of Stock A% | =(Variance)^(1/2) | 33.14 | |||
| Stock B | |||||
| Scenario | Probability | Return% | =rate of return% * probability | Actual return -expected return(A)% | (B)^2* probability |
| Recession | 0.5 | 20 | 10 | -17 | 0.01445 |
| Normal | 0.5 | 30 | 15 | -7 | 0.00245 |
| Boom | 0.3 | 40 | 12 | 3 | 0.00027 |
| Expected return %= | sum of weighted return = | 37 | Sum=Variance Stock B= | 0.01717 | |
| Standard deviation of Stock B% | =(Variance)^(1/2) | 13.1 |
Please ask other part seperately, it is unrelated
