Homework Answers
Stock B is under-priced relative to Stock A
This situation is inconsistent with the CAPM.
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Chapter 07 Practice Test Question 09 CAPM and Security Pricing Stock A has an expected return...
CAPM and Security Pricing Stock A has an expected return of 28% and a beta of 2.3. Stock B has an expected return of...
CAPM and Security Pricing Stock A has an expected return of 28% and a beta of 2.3. Stock B has an expected return of 28% and a beta of 2.3 when the risk free rate is 6%. Which of the following statements are correct? I. Stock A is underpriced relative to Stock B II. Stock B is underpriced relative to Stock A III. This situation is inconsistent with the CAPM IV. This situation is consistent with the CAPM Multiple Choice:...
Chapter 07 Practice Test Question 06 Alpha and the CAPM A stock with a beta of...
Chapter 07 Practice Test Question 06 Alpha and the CAPM A stock with a beta of 0.81 has an expected return of 11% and an alpha of 1.47% when the market expected return is 11%. What must be the risk free rate that satisfies these conditions? points Skipped eBook Print 10 0 0 0 References Chapter 07 Practice Test Question 07 Portfolio Beta An investor places $5,000 in Stock A, $4,000 in Stock B and $10,000 in Stock C. Stock...
Chapter 07 Practice Test Question 10 Working With the CAPM You believe that a stock is...
Chapter 07 Practice Test Question 10 Working With the CAPM You believe that a stock is fairly priced according to the CAPM. The stock has a beta of 2.8 when the market risk premium is 5.1% and the risk free rate is 2.6%. If the stock's dividend yield is 3.9% what is the stock's expected capital gain yield? points Skipped Multiple Choice eBook 0 Print 0 References 0 12.98% 0
Assume the Capital Asset Pricing Model (CAPM) holds. The expected annual return of stock A is...
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
Question 4 [3 points) Suppose that the Capital Asset Pricing Model (CAPM) holds. The market portfolio...
Question 4 [3 points) Suppose that the Capital Asset Pricing Model (CAPM) holds. The market portfolio has an expected return of 9% and a standard deviation of 16%. Stock AAA has an expected return of 12%, a beta of 1.4, and a standard deviation of 28%. a. What is the risk-free rate? [1 point] b. What is the alpha of stock AAA? [1 point) c. What proportion of the total risk of stock AAA is idiosyncratic? [1 point]
4. Stock A has the expected return of 12%, the standard deviation of 15%, and the...
4. Stock A has the expected return of 12%, the standard deviation of 15%, and the CAPM beta of 0.5. Stock B has the expected return of 18%, the standard deviation of 20% and the CAPM beta of 1.1. The risk-free rate is 3%. If you have no other wealth could invest in some combination of the risk-free asset and only one of these two stocks, which of the stocks A and B will you choose and why? (1 point)
Please choose a letter answer and explain the answer please. According to the CAPM the expected return of a zero beta s...
Please choose a letter answer and explain the answer please. According to the CAPM the expected return of a zero beta security is . the market rate of return zero a negative rate of return the risk-free rate The arbitrage pricing theory differs from the capital asset pricing model because the APT . places more emphasis on market risk minimizes the importance of diversification recognizes multiple unsystematic risk factor recognizes multiple systematic risk factors If you believe in...
Problem 13-20 Using CAPM [LO4] A stock has a beta of 1.50 and an expected return...
Problem 13-20 Using CAPM [LO4] A stock has a beta of 1.50 and an expected return of 14 percent. A risk-free asset currently earns 2 percent. a. What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return % b. If a portfolio of the two assets has a beta of .84, what are the...
Consider the following information: Beta Portfolio Risk- free Market Expected Return 6 % 11.4 9.4 20...
Consider the following information: Beta Portfolio Risk- free Market Expected Return 6 % 11.4 9.4 20 a. Calculate the expected return of portfolio A with a beta of 20. (Round your answer to 2 decimal places.) Expected return b. What is the alpha of portfolio A (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Alpha c. If the simple CAPM is valid state whether the above situation is possible? Yes No 5....
Question 5 (8 points) a. The expected rates of return for stocks A and B are...
Question 5 (8 points) a. The expected rates of return for stocks A and B are 16% and 20% respectively. The beta of stock A is 0.7 while that of stock B is 0.8. The T-bill rate is 4% and the expected rate of return on S&P 500 index is 24%. The standard deviation of stock A is 20% while that of B is 32%. If you could invest only in T-bills plus one of these stocks, which stock would...
Chapter 07 Practice Test Question 06 Alpha and the CAPM A stock with a beta of 0.81 has an expected return of 11% and an alpha of 1.47% when the market expected return is 11%. What must be the risk free rate that satisfies these conditions? points Skipped eBook Print 10 0 0 0 References Chapter 07 Practice Test Question 07 Portfolio Beta An investor places $5,000 in Stock A, $4,000 in Stock B and $10,000 in Stock C. Stock...
Chapter 07 Practice Test Question 10 Working With the CAPM You believe that a stock is fairly priced according to the CAPM. The stock has a beta of 2.8 when the market risk premium is 5.1% and the risk free rate is 2.6%. If the stock's dividend yield is 3.9% what is the stock's expected capital gain yield? points Skipped Multiple Choice eBook 0 Print 0 References 0 12.98% 0
Question 4 [3 points) Suppose that the Capital Asset Pricing Model (CAPM) holds. The market portfolio has an expected return of 9% and a standard deviation of 16%. Stock AAA has an expected return of 12%, a beta of 1.4, and a standard deviation of 28%. a. What is the risk-free rate? [1 point] b. What is the alpha of stock AAA? [1 point) c. What proportion of the total risk of stock AAA is idiosyncratic? [1 point]
4. Stock A has the expected return of 12%, the standard deviation of 15%, and the CAPM beta of 0.5. Stock B has the expected return of 18%, the standard deviation of 20% and the CAPM beta of 1.1. The risk-free rate is 3%. If you have no other wealth could invest in some combination of the risk-free asset and only one of these two stocks, which of the stocks A and B will you choose and why? (1 point)
Consider the following information: Beta Portfolio Risk- free Market Expected Return 6 % 11.4 9.4 20 a. Calculate the expected return of portfolio A with a beta of 20. (Round your answer to 2 decimal places.) Expected return b. What is the alpha of portfolio A (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Alpha c. If the simple CAPM is valid state whether the above situation is possible? Yes No 5....
Question 5 (8 points) a. The expected rates of return for stocks A and B are 16% and 20% respectively. The beta of stock A is 0.7 while that of stock B is 0.8. The T-bill rate is 4% and the expected rate of return on S&P 500 index is 24%. The standard deviation of stock A is 20% while that of B is 32%. If you could invest only in T-bills plus one of these stocks, which stock would...
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