8. Estimating Risk and Return

Questions

In a Word document, respond to the following. Number your responses 1–2.

Explain why expected return is considered forward-looking. What challenges arise in using expected return?
Explain how differences in allocations between the risk-free security and the market portfolio can determine the level of market risk.

Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

Problems

In either a Word document or Excel spreadsheet, complete the following problems.

You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
If you choose to solve the problems algebraically, be sure to show your computations.
If you use a financial calculator, show your input values.
If you use an Excel spreadsheet, show your input values and formulas.

Based on the probability and percentage of return for the three economic states in the table below, compute the expected return.

Economic State Probability. Percentage of Return

Fast Growth 0.10 60

Slow Growth. 0.50. 30

Recession 0.40. -23

If the risk-free rate is 7 percent and the risk premium is 4 percent, what is the required return?
Suppose that the average annual return on the Standard and Poor’s 500 Index from 1969 to 2005 was 14.8 percent. The average annual T-bill yield during the same period was 5.6 percent. What was the market risk premium during these 10 years?
Conglomco has a beta of 0.32. If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is Conglomco’s required return? Use the capital asset pricing model (CAPM) to calculate Conglomco’s required return.
Calculate the beta of a portfolio that includes the following stocks:
Conglomco stock, which has a beta of 3.9 and comprises 35 percent of the portfolio.
Supercorp stock, which has a beta of 1.7 and comprises 25 percent of the portfolio.
Megaorg stock, which has a beta of 0.3 and comprises 40 percent of the portfolio.

Turn in your highest-quality paper
Get a qualified writer to help you with

“ 8. Estimating Risk and Return ”

Get high-quality paper

NEW! AI matching with writer

How Our Dissertation Writing Service Works

First, you will need to complete an order form. It's not difficult but, if anything is unclear, you may always chat with us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.

Complete the order form

Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.

Writer’s assignment

As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.

Completing the order and download