20 18 Stock DET 16 14 12 Stock AIL 10 Stock INO 6 4 2 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 RISK (Beta) A stock is in equilibrium if its required return its expected return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst's expected return estimates, stock INO is , stock AIL is in equilibrium, and stock DET is RATE OF RETURN (Percent)

20 18 Stock DET 16 14 12 Stock AIL 10 Stock INO 6 4 2 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 RISK (Beta) A stock is in equilibrium if its required return its expected return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst's expected return estimates, stock INO is , stock AIL is in equilibrium, and stock DET is RATE OF RETURN (Percent)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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K To get the maximum benefit of diversification, an investor should OA. include in his portfolio stocks whose returns are not correlated with each other OB. include in his portfolio stocks whose returns are positively correlated with each other OC. include only one stock in his portfolio. OD. include in his portfolio stocks whose returns are negatively correlated with each other
9. Efficient markets hypothesis Which of the following statements are consistent with the efficient markets hypothesis? Check all that apply. You should spend several hours a day studying the business section of your local newspaper to determine which stocks to add to your investment portfolio. The stock market is informationally efficient. An average person in the market will believe that all stocks are fairly valued.
E3
Question 5 (5.5 points): Hedge May 20th: Producer plans to sell corn in early November. Currently the December corn futures are trading at $4.33. The expected basis is -$0.36. • Does the producer have a long or short cash position? (buy/sell) Dec corn futures at $4.33/bu. Nov. 10th: To hedge: The producer will What is the expected price? • The producer must (buy/sell) corn locally in the cash market at • • $4.18/bu. To offset their future position, they must $4.67/bu. What is the actual basis? What is the realized price for the producer? ○ Method 1: Method 2: о The hedge resulted in a realized price of (buy/sell) Dec futures at
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