Question 10
You want to use the following asset pricing models to determine the expected return on McDonald’s stock.
The info. of the risk-free rate and the risk factors are as follows:
Assume the average annual return on McDonald’s stock is 7.5%. Based on the CAPM, what is its alpha? ______%
Be careful: the beta to the market factor in the CAPM is slight different from the FF3 factor model.
According to the CAPM,
Expected Return = Risk-free Rate + [Beta * {E(RM) - Risk-free Rate}]
Alpha = E(r) - Return calculated by CAPM
= 7.5% - [3% + [0.48 * (9.5% - 3%)]
= 7.5% - [3% + 3.12%]
= 7.5% - 6.12% = 1.38%
Question 10 You want to use the following asset pricing models to determine the expected return...
Question 9 You want to use the following asset pricing models to determine the expected return on McDonald’s stock. CAPM: βM = 0.48 FF3 factor: βM = 0.40, βSMB = -0.41, βHML = 0.54 The info. of the risk-free rate and the risk factors are as follows: The risk-free interest rate is 3%. E(RM) = 9.5%, E(RSMB) = 2.5%, E(RHML) = 6% What is the expected return on McDonald’s stock based on the FF3 factor model? ______%
HW10 Q9 You want to use the following asset pricing models to determine the expected return on McDonald’s stock. CAPM: βM = 0.48 FF3 factor: βM = 0.40, βSMB = -0.41, βHML = 0.54 The info. of the risk-free rate and the risk factors are as follows: The risk-free interest rate is 3%. E(RM) = 9.5%, E(RSMB) = 2.5%, E(RHML) = 6% What is the expected return on McDonald’s stock based on the FF3 factor model? ______%
Question 9 You want to use the following asset pricing models to determine the expected return on McDonald’s stock. CAPM: βM = 0.48 FF3 factor: βM = 0.40, βSMB = -0.41, βHML = 0.54 The info. of the risk-free rate and the risk factors are as follows: The risk-free interest rate is 3%. E(RM) = 9.5%, E(RSMB) = 2.5%, E(RHML) = 6% The expected return on McDonald’s stock based on the FF3 factor model is 7.815% Following Question 9 –...
Question 6 The risk-free interest rate is 4% and the expected return on the market portfolio is 10%. Scott, a portfolio manager, runs a portfolio that has a beta of 2/3 and an average annual return of 9% per year. Based on the CAPM the abnormal return (i.e. α) of Scott’s portfolio is 1% Following 6 – Assume the return on the size factor is 3.5% and the return on the B/M factor is 5%. Scott’s portfolio has a market...
Assume the Capital Asset Pricing Model (CAPM) holds. The expected annual return of stock A is 6%. The annual risk-free rate was 5% and the expected annual return of the market was 7%. If the standard deviation of annual return of stock A was 15% and the standard deviation of annual return of the market was 10%, what is the correlation between annual returns of stock A and the market? A. 0.5 B. 0.33 C. 0.66 D. −0.66 E. 1
please answer question 4 Examples on Asset Pricing Models 1. You are given the following equilibrium expected returns and risks -07: 12 ke (RA) - 12.296; E(R) -15.556; No. 0. 015 a. What is the equation of the Security Market Line? b. A portfolio, made up of A (above) and another security, has a beta of 1.10 and expected return of 1396Which one would you rather buy - A alone or the portfolio? Why? ES 1.6 I OVAL B A...
9. The Arbitrage Pricing Theory Which of the following statements about the Arbitrage Pricing Theory (APT) are correct? Check all that apply. The APT is more restrictive than the Capital Asset Pricing Model (CAPM). The APT assumes that all investors hold the market portfolio The APT does not identify the relevant factors. The APT does not restrict the number or nature of the factors relevant to the determination of a stock's return. Karine, an analyst at Graffiti Aviation (GA), models...
9. The Arbitrage Pricing Theory Which of the following statements about the Arbitrage Pricing Theory (APT) are correct? Check all that apply. The APT does not restrict the number or nature of the factors relevant to the determination of a stock's return. The APT assumes that all investors hold the market portfolio. The APT is more restrictive than the Capital Asset Pricing Model (CAPM). The APT does not identify the relevant factors. Emily, an analyst at PietreDure Prestige (PDP), models...
question 2 Examples on Asset Pricing Mode 1. You are given the following equilibrium expected returns and risks 7 (R- es-2 E(RA)- 12.2 % ; E(Ra)-15.5 % ; Ba-1.25 BA-0.7; .£{{¢*6,4 *రి 6 a What is the equation of the Security Market Line? b. A portfolio, made up of A (above) and another security, has a beta of 1.10 and expected return of 13 %. Which one would you rather buy- A alone or the portfolio? Why? (R) 4-6 7...
please answer question #1 7 1. You are given the following equilibrium expected returns and risks E(R) - 12.2%; E(Re) - 15.5% BA -0.7; Be-1.25. c( 0.460.0615 a. What is the equation of the Security Market Line? b. A portfolio, made up of A (above) and another security, has a beta of 1.10 and expected return of 13%. Which one would you rather buy - A alone or the portfolio? Why? Ee19. 6 - OVAL BYA c. Given the SML...