Finance-Estimating risk and return

Feb 3rd, 2012
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Course: Business and Management
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1. Explain why expected return is considered forward-looking. What challenges arise in using expected return? 2. 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. 1. 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 2. If the risk-free rate is 7 percent and the risk premium is 4 percent, what is the required return? 3. 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. Wha

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1. Explain why expected return is considered forward-looking. What challenges arise in using expected return?2. 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.1. Based on the probability and percentage of return for the three economic states in the table below, compute the expected return.Economic StateProbabilityPercentage of ReturnFast Growth0.1060Slow Growth0.5030Recession0.40-232. If the risk-free rate is 7 percent and the risk premium is 4 percent, what is the required return?3. Suppose that the average annual return on the Standard and Poor's 500 Index from 1969

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