Homework Answers
The slope of the regression line is called Beta.
Beta that is systematic risk is determined by: Rate of change of stock return to the rate of change of market return. It is the sensitivity of stock return to Market return.
Since all stocks are directly related to the economy beta cannot be negative in practical life but in theory it can be.
Beta is negative represents:
There is a negative correlation between the stock and the
market.
It means if the market falls the stock rises &
if the market rises the stock falls.
There is a rate of change in the opposite direction.
Since beta is negative it should be held in the portfolio to act as a hedge against market address.
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9. If you plotted the returns of a given stock against those of the market, and...
The figures below show plots of monthly excess returns for two stocks plotted against excess returns...
The figures below show plots of monthly excess returns for two stocks plotted against excess returns for a market index, Bess Returns Stock A Excess Returns Stock B Which stock is riskier to a nondiversified investor who puts all his money in only one of these stocks? Multiple Choice 0 Stock A is riskier. 0 Stock Bis riskier. 0 Both stocks are equally risky. 0 The answer cannot be determined from the information given.
You are studying the relationship between stock returns (S) and bond returns (B). To do this...
You are studying the relationship between stock returns (S) and bond returns (B). To do this you gather the daily returns of the stock market and the daily return of US Government bonds and perform a regression analysis that shows the following linear relationship: S = 0.25 B +0.05 Rsquared = 0.95 Which of the following is FALSE? The regression shows an inverse relationship between stocks and bonds The Rsquared shows that 95% of the variability of stock returns are...
You have run a regression of monthly returns on a stock against monthly returns on the...
You have run a regression of monthly returns on a stock against monthly returns on the S&P 500 index, and come up with the following output: Rstock = 0.25% + 1.25 RMarket R2 = 0.60 The current one-year treasury bill rate is 4.8%, the current ten-year bond rate is 7.25% and the current thirty-year bond rate is 8%. The firm has 10 million shares outstanding, selling for $10 per share. i. What is the expected return on this stock over...
You run a regression of the excess returns of ABC stock on the excess returns of...
You run a regression of the excess returns of ABC stock on the excess returns of the market portfolio M and obtain an output: RAbc - Rf= -.04 + 1.0 × (RM-Rf) + error The expected return of the market portfolio is 10% and the risk-free rate is 5%. What ABC stock's Alpha? What is ABC stock's expected return? If you are a fund manager and you want to build your portfolio such that it has an alpha of 2%...
You are given the following information concerning a stock and the market Returns Market Stock Year...
You are given the following information concerning a stock and the market Returns Market Stock Year 15% 27% 19 2011 2012 19 2013 25 5 2014 -12 -22 2015 35 16 2016 15 27 a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Market Stock % Average return Standard deviation b. Calculate the...
15% 0% TU) You are given Tollowing intornation: Market Scenario Probability cp) Stock A's Returns Stock...
15% 0% TU) You are given Tollowing intornation: Market Scenario Probability cp) Stock A's Returns Stock B's Returns Market Index Returns 25% 0% 10.2 18% 10% 0.3 10% 8% 10.2 112% 10% 0.2 16% -4% Additional information: Standard Deviation: Stock A =10.67%; Stock B - 5%; Market Index - 6.02% Covariances: Cov(Stock A & Market Index) - 64.15 or 0.006415; Cov(Stock B & Market Index) = 30 or 0.003000; Cov(Stock A & Stock B) = -53.20 or -0.005320; Prote=27 a)...
You are given the following information concerning a stock and the market: Returns Year Market Stock...
You are given the following information concerning a stock and the market: Returns Year Market Stock 2011 20 % 32 % 2012 10 10 2013 20 4 2014 −15 −29 2015 37 16 2016 15 16 a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. Calculate the correlation between the stock and...
You are given the following information concerning a stock and the market: Returns Year Market Stock...
You are given the following information concerning a stock and the market: Returns Year Market Stock 2011 15 % 27 % 2012 14 30 2013 15 6 2014 −14 −24 2015 37 16 2016 15 25 a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. Calculate the correlation between the stock and...
The returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D are
(2) An economy has two scenarios: boom or bust. The returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D are (a) If each scenario is equally likely, find the beta of each stock. (b) Find the expected rate of return on the market portfolio and on each stock. (c) If the treasury bill rate is 4%, what does CAPM say about the fair expected rate of return on the two stocks?
Returns on common stocks in the United States and overseas appear to be growing more closely...
Returns on common stocks in the United States and overseas appear to be growing more closely correlated as economies become more interdependent. Suppose that this regression line connects the total annual returns (in percent) on two indexes of stock prices. PREDICTED OVERSEAS RETURN = 4.4 + 0.64 U.S. RETURN (a)What is the estimated y-intercept in this line? What does this number say about the overseas returns when the US, market is flat (0% return This number means that when the...
The figures below show plots of monthly excess returns for two stocks plotted against excess returns for a market index, Bess Returns Stock A Excess Returns Stock B Which stock is riskier to a nondiversified investor who puts all his money in only one of these stocks? Multiple Choice 0 Stock A is riskier. 0 Stock Bis riskier. 0 Both stocks are equally risky. 0 The answer cannot be determined from the information given.
You are studying the relationship between stock returns (S) and bond returns (B). To do this you gather the daily returns of the stock market and the daily return of US Government bonds and perform a regression analysis that shows the following linear relationship: S = 0.25 B +0.05 Rsquared = 0.95 Which of the following is FALSE? The regression shows an inverse relationship between stocks and bonds The Rsquared shows that 95% of the variability of stock returns are...
You are given the following information concerning a stock and the market Returns Market Stock Year 15% 27% 19 2011 2012 19 2013 25 5 2014 -12 -22 2015 35 16 2016 15 27 a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Market Stock % Average return Standard deviation b. Calculate the...
15% 0% TU) You are given Tollowing intornation: Market Scenario Probability cp) Stock A's Returns Stock B's Returns Market Index Returns 25% 0% 10.2 18% 10% 0.3 10% 8% 10.2 112% 10% 0.2 16% -4% Additional information: Standard Deviation: Stock A =10.67%; Stock B - 5%; Market Index - 6.02% Covariances: Cov(Stock A & Market Index) - 64.15 or 0.006415; Cov(Stock B & Market Index) = 30 or 0.003000; Cov(Stock A & Stock B) = -53.20 or -0.005320; Prote=27 a)...
Returns on common stocks in the United States and overseas appear to be growing more closely correlated as economies become more interdependent. Suppose that this regression line connects the total annual returns (in percent) on two indexes of stock prices. PREDICTED OVERSEAS RETURN = 4.4 + 0.64 U.S. RETURN (a)What is the estimated y-intercept in this line? What does this number say about the overseas returns when the US, market is flat (0% return This number means that when the...
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