Question

37. You are recalculating the risk of ACE stock in relation to the market index, and you find that the ratio of the systemati
0 0
Add a comment Improve this question Transcribed image text
Answer #1

37)

Systematic risk refers to the risk inherent to the entire market or market segment. It is also known as undiversifiable risk.

Since, the ratio of systematic risk to the total variance has increased, this is likely due to increase in correlation co-efficient between ACE and the Market.

Hence, correct Answer is Option C.

Add a comment
Know the answer?
Add Answer to:
37. You are recalculating the risk of ACE stock in relation to the market index, and...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • 6. Suppose the index model for stocks 1 and 2 has the following results The standard...

    6. Suppose the index model for stocks 1 and 2 has the following results The standard deviations of e1 and e2 are 20% and 25% respectively. (1) Calculate the standard deviation of stock 1 and stock 2. (2) What is the covariance between each stock and the market index (3) What are the covariance and correlation coefficient between these two stocks? (4) Break down the variance of each stock into its systematic and firm-specific component.

  • 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...

  • 2. Suppose that the index model for stocks A and B is estimated from excess returns...

    2. Suppose that the index model for stocks A and B is estimated from excess returns with the following results: R. 396 + 0.7 Rmte, Rs:-2% + 1.2 Rm+eb Ơn® 20%; R-SQRas 0.20;R-SQRb 0.12 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...

  • Question 1: You are planning about putting some money in the stock market. There are two...

    Question 1: You are planning about putting some money in the stock market. There are two stocks in your mind: stock A and stock B. The economy can either go in recession or it will boom in the coming years. Being an optimistic investor, you believe the likelihood of observing an economic boom is two times as high as observing an economic depression. You also know the following about your two stocks: State of the Economy Probability RA RB Boom...

  • 1. The universe of available securities includes two risky stock funds, A and B and T-bills....

    1. The universe of available securities includes two risky stock funds, A and B and T-bills. The data for the universe are as follows: Expected Return Standard Deviation 109 20 Tbilis The correlation coefficient between funds A and B is -0.2. a. Find the optimal risky portfolio, P. and its expected return and standard deviation b. Find the slope of the CAL supported by T-bills and portfolio P. c. How much will an investor with 4-5 invest in funds A...

  • 1. The universe of available securities includes two risky stock funds, A and B, and T-blls....

    1. The universe of available securities includes two risky stock funds, A and B, and T-blls. The data for the universe are as follows Expected Return Standard Deviation A 10% 20% В 30 60 T-bills The correlation coefficient between funds A and B is -0.2. a. Find the optimal risky portfolio, P, and its expected return and standard deviation. b. Find the slope of the CAL supported by T-bills and portfolio P c. How much will an investor with A...

  • Plz answer question A 1.3 Month Return of Stock A Return of Market Index 2.3 2.5...

    Plz answer question A 1.3 Month Return of Stock A Return of Market Index 2.3 2.5 5.0 3 1.9 0.8 4 2.4 1.9 2.1 1.1 a. Find Covariance of return of stock A and return of Market Index (0.5% of your total grade) b. Find Correlation Coefficients of stock A and return of Market Index (0.5% of your total grade)

  • Home assignment 4 Consider following information Probability of the state of economy Rate of return if state occurs StockA StockB boom normal a. b. c. 0.2 0.8 0.4 0.2 0.05 Calculate the expected...

    Home assignment 4 Consider following information Probability of the state of economy Rate of return if state occurs StockA StockB boom normal a. b. c. 0.2 0.8 0.4 0.2 0.05 Calculate the expected return of Calculate the variance and standard deviation of each stock. Calculate the covariance between stock A and B returns and the correlation coefficient. Calculate the expected return of the portfolio (Portfolio!) consisting 40% of stock A and 60% of stock B. Calculate the variance and standard...

  • investing your money in the stock market

    You are thinking about investing your money in the stock market. You have the following two stocks in mind: stock A and stock B. You know that the economy can either go in recession or it will boom. Being an optimistic investor, you believe the likelihood of observing an economic boom is two times as high as observing an economic depression. You also know the following about your two stocks:State of the EconomyProbabilityRARBBoom10%–2%Recession6%40%a) Calculate the expected return for stock A...

  • The variance of Stock A is .0036, the variance of the market is .0059, and the...

    The variance of Stock A is .0036, the variance of the market is .0059, and the covariance between the two is .0026. What is the correlation coefficient? .8776 .1224 .5010 .5642 .4918

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT