Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart: |
Factor | β | Expected Value | Actual Value | ||||
GDP | .0008621 | $14,236 | $14,222 | ||||
Inflation | −.90 | 3.9% | 3.7% | ||||
Interest rates | −.47 | 7.2% | 7.0% | ||||
a. |
What is the systematic risk of the stock return? (A negative answer should be indicated by a negative sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Systematic risk of the stock return | ___________ % |
b. |
Suppose unexpected bad news about the firm was announced that causes the stock price to drop by 1.3 percent. If the expected return on the stock is 13.9 percent, what is the total return on this stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Total return of the stock | _____________% |
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those...
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart: Factor β Expected Value Actual Value GDP .0008741 $14,251 $14,238 Inflation -.91 4.0% 3.8% Interest rates -.48 7.4% 7.2% a. What is the systematic risk of the stock return? (A negative answer should be indicated by a negative sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places,...
Suppose stock returns can be explained by the following three-factor model: Ri = RF + β1F1 + β2F2 − β3F3 Assume there is no firm-specific risk. The information for each stock is presented here: β1 β2 β3 Stock A 1.09 .41 .04 Stock B .71 1.26 −.16 Stock C .62 −.08 1.15 The risk premiums for the factors are 5.7 percent, 5.8 percent, and 6.5 percent, respectively. You create a portfolio with 30 percent invested in Stock A, 25 percent...
A researcher has determined that a two-factor model is appropriate to determine the return on a stock. The factors are the percentage change in GNP and an interest rate. GNP is expected to grow by 4.4 percent, and the interest rate is expected to be 3.9 percent. A stock has a beta of 2.1 on the percentage change in GNP and a beta of –.83 on the interest rate. If the expected rate of return on the stock is 12...
Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .20 .28 .40 .56 Normal .45 .22 .20 .18 Bust .35 .00 −.20 −.48 a-1 If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded...
A researcher has determined that a two-factor model is appropriate to determine the return on a stock. The factors are the percentage change in GNP and an interest rate. GNP is expected to grow by 4.3 percent and the interest rate is expected to be 3.8 percent. A stock has a beta of 2 on the percentage change in GNP and a beta of –.82 on the interest rate. If the expected rate of return on the stock is 11...
Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .20 .28 .40 .56 Normal .45 .22 .20 .18 Bust .35 .00 −.20 −.48 a-1 If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2...
Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of State of Economy Economy Stock A .32 Stock C .56 Boom Normal Bust Stock B .44 11 -25 26 .50 24 .09 .04 -.45 a-3 a-1. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to...
Suppose stock returns can be explained by a two-factor model. The firm-specific risks for all stocks are independent. The following table shows the information for two diversified portfolios: B1 B2 E(R Portfolio 80 1.10 14% A Portfolio 1.40 -20 12 If the risk-free rate is 5 percent, what are the risk premiums for each factor in this model? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Factor F1 Factor...
Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy Economy Boom Normal Bust State of Stock B 56 .14 -.46 25 45 .30 25 .22 .30 .30 c-1. If the expected inflation rate is 4.30 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-2. What are the...
tock Y has a beta of 1.4 and an expected return of 17 percent. Stock Z has a beta of .7 and an expected return of 10.1 percent. If the risk-free rate is 6 percent and the market risk premium is 7.2 percent, the reward-to-risk and ratios for Stocks Y and Z are percent, respectively. Since the SML reward-to-risk is percent, Stock Y is and Stock Z is (Do not round intermediate calculations and enter your answers as a percent...