A financial analyst has estimated the expected rates of return, coefficient of variations, and betas, respectively for each of four stocks, as shown below: Stock A 5%, 0.65, 2.02 Stock B 8%, 0.92, 1.25 Stock C 10%, 0.41, 1.00 Stock D 14%, 0.73, 2.54 If considered as part of a portfolio of stocks, which stock is clearly the most risky? OD A OB Oc 12

A financial analyst has estimated the expected rates of return, coefficient of variations, and betas, respectively for each of four stocks, as shown below: Stock A 5%, 0.65, 2.02 Stock B 8%, 0.92, 1.25 Stock C 10%, 0.41, 1.00 Stock D 14%, 0.73, 2.54 If considered as part of a portfolio of stocks, which stock is clearly the most risky? OD A OB Oc 12

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose stock returns have a 2-factor structure. You observe a broad stock market portfolio A which earns on average 7.4% and has beta 0.5 on the first factor and beta 0.7 on the second factor; and another broad stock market portfolio B which earns on average 10.6% and has beta 1.2 on the first factor and beta 0.2 on the second factor. The risk free return is 3%. What do you expect to earn from a portfolio with beta 1 on the first factor and zero on the second factor?
The index model has been estimated using historical excess return data for stocks A, B, and C, with the following results: RA = 0.02 + 0.9RM + eA RB = 0.04 + 1.2RM + eB RC = 0.10 + 1.ORM + eC OM oM = 0.22 o(eA) = 0.21 o(eB ) = 0.11 o(eC ) = 0.23 a. What are the standard deviations of stocks A, B, and C? b. Break down the variances of stocks A, B, and C into their systematic and firm-specific components. c. What is the covariance between the returns on each pair of stocks? d. What is the covariance between each stock and the market index?
How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
You've gathered the following infomration on stock A and stock B: Beta Volatility Stock 1.5 25% A Stock 1.25 30% B Which stock has a higher systematic risk? O O Stock A Stock B They're the same Not enough information to decide
You have estimated the following probability distributions of expected future returns for Stocks X and Y: Stock X Stock Y Probability Return Probability Return 0.1 -12 % 0.2 4 % 0.1 11 0.2 7 0.3 14 0.3 11 0.3 30 0.2 17 0.2 40 0.1 30 What is the expected rate of return for Stock X? Stock Y? Round your answers to one decimal place.Stock X: % Stock Y: % What is the standard deviation of expected returns for Stock X? For Stock Y? Round your answers to two decimal places.Stock X: % Stock Y: % Which stock would you consider to be riskier? is riskier because it has a standard deviation of returns.
Your client is considering purchasing stocks. The actual return of one o his choices follows here. Assist him by calculating the standard deviation and advise him what the risk is. Stock 'A' Actual Returns = 6%, 12%, 8%, 10% 0.0164 0.0258 0.0542 0.1072
*Stock A has a beta of 1.3 and an expected return of 10.2. Stock B has a beta of 0.8 and an expected return of 8.7. If these stocks are priced correctly according to the CAPM, what is the risk-free rate? Give your answer in percentage to the nearest basis point.
Use the following information on Stocks X and Y to answer questions 1 through 3 (round to the nearest percent). Bear Market Normal Market Bull Market Probability 0.2 0.5 0.3 Stock X’s return -25% 10% 50% Stock Y’s return -15% 20% 10% What are the standard deviations of returns on Stocks X and Y?
Vinay
Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%.
Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%. Complete this question by entering your answers in the tabs below. Required A Required B Required E What are the betas of the two stocks? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Aggressive stock Defensive stock Beta
Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.10 10% 8% 2 0.20 13% 7% 3 0.20 12% 6% 4 0.30 14% 9% 5 0.20 15% 8% The coefficient of correlation between A and B is:

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