Homework Answers
It seems that by Ra, question means Risk of Stock A since
without assuming such it is not possible to calculate Risk only
with the help of return.
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You run a single index model on Stock A and Stock B. The single factor is...
Variance of market portfolio return = 0.07 Given the assumption of a single factor model,...
Variance of market portfolio return = 0.07
Given the assumption of a single factor model, calculate the
following:
The residual variance of each of the above stocks;
The expected return on this 3-stock portfolio;
The beta factor of this 3-stock portfolio;
The variance of this 3-stock portfolio.
be? (10 marks) b) You are given the following table: Securities Weight Beta 1 Expected return 0.7 0.9 0.3 0.4 0.3 2 3 Variance of return 0.06 0.08 0.13 0.6 0.8 1.1...
#05 A Saved Consider the two (excess return) index-model regression results for stocks A and B....
#05 A Saved Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 5%, a market's average return was 14%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, ole) Standard deviation of excess returns Stock A 1% + 1.2 (rm -rf) 0.611 10.9% 22.2% Stock B 2% + 0.8(rm -rf) 0.454 19.7% 26.1% a. Calculate the following statistics for...
please show work Consider the two (excess return) index-model regression results for stocks A and B....
please show work
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 5%, and the market's average return was 12%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns Stock A 1% + 1.2 (rm -rf 0.599 10.7% 22% Stock B 2% + 0.8(rm -rf) 0.448 19.5% 25.7% a. Calculate the following statistics...
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the market's average return was 13%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns Stock A 1% + 1.2 (rm -rf) 0.629 11.2% 22.5% Stock B 2% + 0.8(rm -rf) 0.463 20% 26.7% a. Calculate the following statistics for each stock:...
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: Ra : 3% + 0.7 Rm + ea Rs--2% + 1.2 Rm + eb What is the standard deviation for each stock? Break down the variance of each stock to the systematic and firm-specific components What are the covariance and correlation coefficient between the two stocks? What is the covariance between each stock and the market index? Are the intercepts of...
The index model has been estimated for stocks A and B with the following results: RA=...
The index model has been estimated for stocks A and B with the following results: RA= 0.12 +0.650RM + EA RB=0.04 + 1.480 RM+ eB OM=0.310 Olex) = 0.20 Oleg) = 0.10 What is the covariance between each stock and the market index? (Round your answers decimal places.) Stock A covariance Stock B covariance
9 Question 21 (1 point) ✓ Saved In the single index model we assume which of...
9 Question 21 (1 point) ✓ Saved In the single index model we assume which of the following? 1 12 ✓ 14 15 The higher a stock's standard deviation, the higher its expected return. The higher a stock's standard deviation, the higher its Beta. 17 18 A stock's return is uncorrelated to the market. ! 20 21 Firm specific risk is correlated to the market. A stock's systematic risk is unpriced. 23 24 None of the above Question 22 (1...
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.5% + 0.60RM + EA RB = -1.5% + 0.7 RM + EB OM = 19%; R-square A = 0.24; R-squares = 0.18 Break down the variance of each stock to the systematic and firm-specific components. (Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. Round your answers to 4 decimal places.) Risk for A...
Exercise 1 Consider the following APT-style model: where rA and rM are excess returns on, respectively,...
Exercise 1 Consider the following APT-style model: where rA and rM are excess returns on, respectively, an asset A and a market index and π is the inflation rate. You have observed a sample of 88 data points and estimated the ß vector by OLS, resulting in: 0.4, βι 1.5 and β2-0.8, with standard errors, respectively, 0.6, 0.2 and 0.5. You want to compare this model with the standard CAPM model (with intercept) Based on the information you have now.,...
Q2 (e) Assume for simplicity sake that one factor has been deemed appropriate to "explain" returns...
Q2
(e) Assume for simplicity sake that one factor has been deemed appropriate to "explain" returns on stocds (0) How and there is no idiosyncratic risk. Derive the arbitrage pricing theory would you perform a test of the predictions of the capital asset pricing model given historical data (APT) model 2. Consider Tablo 1 Return and Variance a/c to the Stocks Sample Covariance Residual AlphaBeta Expected Variance and Return | with Market | Variance | (96) Return Market 3.60 4.80...
Variance of market portfolio return = 0.07
Given the assumption of a single factor model, calculate the
following:
The residual variance of each of the above stocks;
The expected return on this 3-stock portfolio;
The beta factor of this 3-stock portfolio;
The variance of this 3-stock portfolio.
be? (10 marks) b) You are given the following table: Securities Weight Beta 1 Expected return 0.7 0.9 0.3 0.4 0.3 2 3 Variance of return 0.06 0.08 0.13 0.6 0.8 1.1...
#05 A Saved Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 5%, a market's average return was 14%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, ole) Standard deviation of excess returns Stock A 1% + 1.2 (rm -rf) 0.611 10.9% 22.2% Stock B 2% + 0.8(rm -rf) 0.454 19.7% 26.1% a. Calculate the following statistics for...
please show work
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 5%, and the market's average return was 12%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns Stock A 1% + 1.2 (rm -rf 0.599 10.7% 22% Stock B 2% + 0.8(rm -rf) 0.448 19.5% 25.7% a. Calculate the following statistics...
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the market's average return was 13%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns Stock A 1% + 1.2 (rm -rf) 0.629 11.2% 22.5% Stock B 2% + 0.8(rm -rf) 0.463 20% 26.7% a. Calculate the following statistics for each stock:...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: Ra : 3% + 0.7 Rm + ea Rs--2% + 1.2 Rm + eb What is the standard deviation for each stock? Break down the variance of each stock to the systematic and firm-specific components What are the covariance and correlation coefficient between the two stocks? What is the covariance between each stock and the market index? Are the intercepts of...
The index model has been estimated for stocks A and B with the following results: RA= 0.12 +0.650RM + EA RB=0.04 + 1.480 RM+ eB OM=0.310 Olex) = 0.20 Oleg) = 0.10 What is the covariance between each stock and the market index? (Round your answers decimal places.) Stock A covariance Stock B covariance
9 Question 21 (1 point) ✓ Saved In the single index model we assume which of the following? 1 12 ✓ 14 15 The higher a stock's standard deviation, the higher its expected return. The higher a stock's standard deviation, the higher its Beta. 17 18 A stock's return is uncorrelated to the market. ! 20 21 Firm specific risk is correlated to the market. A stock's systematic risk is unpriced. 23 24 None of the above Question 22 (1...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.5% + 0.60RM + EA RB = -1.5% + 0.7 RM + EB OM = 19%; R-square A = 0.24; R-squares = 0.18 Break down the variance of each stock to the systematic and firm-specific components. (Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. Round your answers to 4 decimal places.) Risk for A...
Exercise 1 Consider the following APT-style model: where rA and rM are excess returns on, respectively, an asset A and a market index and π is the inflation rate. You have observed a sample of 88 data points and estimated the ß vector by OLS, resulting in: 0.4, βι 1.5 and β2-0.8, with standard errors, respectively, 0.6, 0.2 and 0.5. You want to compare this model with the standard CAPM model (with intercept) Based on the information you have now.,...
Q2
(e) Assume for simplicity sake that one factor has been deemed appropriate to "explain" returns on stocds (0) How and there is no idiosyncratic risk. Derive the arbitrage pricing theory would you perform a test of the predictions of the capital asset pricing model given historical data (APT) model 2. Consider Tablo 1 Return and Variance a/c to the Stocks Sample Covariance Residual AlphaBeta Expected Variance and Return | with Market | Variance | (96) Return Market 3.60 4.80...
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