**Risk Premium Analysis for Common Stock***Required:*a. What was the risk premium on common stock in each year? (Negative values should be entered with a negative sign.) b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)**Instructions:**Complete this question by entering your answers in the tabs below.**Question:**What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to two decimal places.)**Table: Risk Premium by Year**| Year | Risk Premium ||------|--------------|| 2013 | % || 2014 | % || 2015 | % || 2016 | % || 2017 | % | **Stock Market and Treasury Bill Returns for a 5-Year Period**The table below presents the annual returns for the stock market and Treasury bills over a five-year span:| Year | Stock Market Return (%) | T-Bill Return (%) ||------|-------------------------|-------------------|| 2013 | 31.7 | 0.02 || 2014 | 10.9 | 0.02 || 2015 | -1.6 | 0.02 || 2016 | 13.0 | 0.02 || 2017 | 21.3 | 0.80 |**Required:**a. What was the risk premium on common stock in each year? (Negative values should be entered with a negative sign.)b. What was the average risk premium?c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)**Instructions:**Complete these questions by entering your answers in the tabs below. Provide the risk premium for each year and use these to calculate the average and standard deviation.

Formulas: Risk premium = Stock market return - T bill return ----------------------------------…

a. What was the risk premium on common stock in each year? (Negative values should be entered with a nega sign.) b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)

a. What was the risk premium on common stock in each year? (Negative values should be entered with a nega sign.) b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)

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

See similar textbooks

Related questions

Q: Consider two stocks, A and B. Expected returns on these stocks are: Standard deviations of their…

A: Given,The expected return of stock A = 10.79%The expected return of stock B = 13.80%The standard…

Q: Using an example of two stocks (e.g., A and B) with hypothetical known values for the mean return…

A: As per our guidelines, we are supposed to answer only 3 sub-parts (if there are multiple sub-parts…

Q: urrent assets of NorthPole.com at 1.7 million, 3rd quarter $1.5 million ermanent current assets is:…

A: Current assets are those assets which can be used to pay for current laibilties that means short…

Q: a) Calculate the main statistic measures to explain the relationship between stock A and the market…

A: Covariance determines the direction of relationship between two variables. Here the two variables…

Q: if the covariance of a stock A with the market M is 0.15 and the standard deviation of the market…

A: Covarianceof a stock A with the market M=0.15Standard devation=36%

Q: Morningstar's Risk-Adjusted Rating most closely resembles which measure? The Treynor Index Jensen's…

A: Financial statements are statements which states the business activities performed by the company .…

Q: A stock has a market beta of 0.62 and a standard deviation of 0.27. If the market standard deviation…

A: Market Beta is 0.62 The standard deviation of a stock is 0.27 The market standard deviation is 0.30…

Q: Based on the following information, what is the diversifiable proportion for the stock? Standard…

A: Stock's standard deviation: 0.5Standard deviation of the index: 0.1Correlation: 0.6

Q: How do you calculate the Treynor ratio for the AMD stock?

A: Treynor ratio is referred to as the portfolio performance, which used to measure regarding the…

Q: Year Stock A Stock B 2010 - 6% 25% 2011 17% 5% 2012 6% 4% 2013 - 9% - 2% 2014 4% - 4% 2015 13% 25%

A: A stock is a security that describes the percentage of ownership of a particular company held by an…

Q: Consider the two (excess return) index-model regression results for stocks A and B. The risk-free…

A: Risk-free rate (Rf) = 7%Market average return = 12%ParticularsStock AStock BIndex model regression…

Q: Estimate the return and standard deviation of the historical returns on Stock A that were: 15%, 20%,…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Q: Morningstar's Risk-Adjusted Rating most closely resembles which measure? The Treynor Index Jensen's…

A: Financial statements are statements which states the business activities performed by the company .…

Q: Given the following probability distribution, what is the standard deviation of returns for Security…

A: Mean= Σ [xi*P(xi)]Standard deviation =sqrt(Σ (xi - x̄)^2*P(xi))

Q: When determining the riskiness of a stand-alone instrument (not included in a portfolio), which of…

A: The asset risk is classified into 2 terms One is stand alone risk in which we consider only the…

Q: The last four years of returns for a stock are as shown here: a. What is the average annual return?…

A: Year Return 1 -3.60% 2 27.50% 3 12.40% 4 3.80% To Find: Average Anual return Variance…

Q: Consider the following two regression lines for Stock A (left) and B (right) in the following…

A: Security market line:The security market line (SML) of stocks is a vital concept in finance that…

Q: What is the correlation between returns of stock S and T, given that covariance between stocks is…

A: Given, Covariance = 2.419 Standard deviation =1.23 and 2.21

Q: Let r be the expected return of stock i, rRE represent the risk-free rate, b represent the Beta of a…

A: Capital Asset Pricing Model: The CAPM explains the relationship between expected return and…

Q: You are conducting some statistical analyses on two securities: Stock X and Stock Y. You find that…

A: Volatility of stock X = 5.78%Volatility of stock Y = 7.94%Correlation = 0.25To find: The covariance…

Q: The last four years of returns for a stock are as shown here: E a. What is the average annual…

A: Year Return 1 -4.30% 2 27.90% 3 12.30% 4 3.60% SUM = 39.50%

Q: Which of the following is (are) correct regarding average returns? A B The geometric mean is a…

A: In finance the geometric average return is a way to figure out the rate of return, on an investment…

Q: Consider three investments. You are given the following means, standard deviations, and correlations…

A: The solver function in Excel helps us solve complex problems with multiple constraints.We begin by…

Q: 4. Which of the following statements is FALSE? A) A stock's return is perfectly positively…

A: Return on stock is the return that is gained by the investor for an investment in stock.

Q: Assume that you run a regression on the raw returns of the stock of Company J against the raw…

A: Jensen’s alpha is an important metric in the world of investments. This metric shows the quantum of…

Q: a. What percentage of returns were between 7 percent and 31 percent? Percentage of returns b. What…

A: The normal distribution is a statistical concept that characterizes a symmetrical probability…

Q: What are the the key concepts (e.g., the standard deviation of the portfolio is less than the…

A: The question is based on the explanation of key concept behind creating a portfolio with different…

Q: The following linear regression estimation results were for the single index models, estimated for…

A: 1. Single Index model is expressed by following equation:-Ri = where ,Ri = return on security i =…

Q: beta for a stock

A: Introduction: Beta can be defined as a metric which helps in measuring the volatility of a stock…

Q: . Suppose the index model for stocks A and B is estimated with the following results: rA = 2% +…

A: Variance is a statistical measure that quantifies the dispersion or spread of a set of data points…

Q: Calculate the expected return for Stock A.

A: Expected Return: It represents the profit or loss expected by an investor on an investment. It is…

Q: 16. There are two stocks with the following return and risk values. The correlation between A and B…

A: The expected return of a portfolio gives the weighted average return that an investor can expect…

Q: Explain why, empirically, there is mean reversion in abnormal earnings.If you divide the sample into…

A: Solution- Abnormal Earnings Valuation Model The abnormal earnings valuation model may be a…

Q: Which of the following statements is false?

A: The three options which are TRUE and the reason for the same are below stated A. The lower the…

Q: Consider the two (excess return) Index-model regression results for stocks A and B. The risk-free…

A: Market return = 11%Risk free rate = 4%To find Alpha, Information ratio, Sharpe ratio, and Treynor…

Q: (Click on the following icon g in order to copy its contents into a spreadsheet.) Year 1 4 Return -…

A: A statistical measure that represents the spread among the return of the investment is term as the…

Q: Calculate the average returns, variance and standard deviation for three securities X, Y and Z that…

A: Average Return, variance and standard deviation of a security is calculated using the below formula…

Q: how do you calculate a stocks average monthly return,its return variance ,standard deviation and…

A: Variance is a measure of risk of returns, it shows how much actual return has deviated from its…

Q: What is the correlation coefficient of the returns of the stock and the returns of the market?

A: Correlation: It is a measure of statistics used to show the degree of association between two…

Q: E(R) E(R) E(R) A A B.

A: The most appropriate image that represents the risk and returns characteristics of a portfolio is…

Q: What is the average annual return? b. What is the variance of the stock's returns? c. What is the…

A: Standard deviation refers to the measurement of the dispersion of data from its mean value which…

Q: Interpret your results in (c) above, assuming that the historical average return of 8.5% from the…

A: d) In part c, at a rate of 8.59% the stock is considered to be fairly priced. However, since the…

Question

**Risk Premium Analysis for Common Stock**

*Required:*

a. What was the risk premium on common stock in each year? (Negative values should be entered with a negative sign.)
b. What was the average risk premium?
c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)

**Instructions:**

Complete this question by entering your answers in the tabs below.

**Question:**

What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to two decimal places.)

**Table: Risk Premium by Year**

| Year | Risk Premium |
|------|--------------|
| 2013 | % |
| 2014 | % |
| 2015 | % |
| 2016 | % |
| 2017 | % |

**Stock Market and Treasury Bill Returns for a 5-Year Period**

The table below presents the annual returns for the stock market and Treasury bills over a five-year span:

| Year | Stock Market Return (%) | T-Bill Return (%) |
|------|-------------------------|-------------------|
| 2013 | 31.7 | 0.02 |
| 2014 | 10.9 | 0.02 |
| 2015 | -1.6 | 0.02 |
| 2016 | 13.0 | 0.02 |
| 2017 | 21.3 | 0.80 |

**Required:**
a. What was the risk premium on common stock in each year? (Negative values should be entered with a negative sign.)
b. What was the average risk premium?
c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)

**Instructions:**
Complete these questions by entering your answers in the tabs below. Provide the risk premium for each year and use these to calculate the average and standard deviation.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the market's average return was 14%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns Stock A 1% +1.2(rm - rf) Stock B 2% +0.8(rm – rf) 0.635 0.466 11.3% 22.6% 20.1% 26.9% Required: a. Calculate the following statistics for each stock: b. Which stock is the best choice under the following circumstances? Complete this question by entering your answers in the tabs below. Required A Required B Calculate the following statistics for each stock: Note: Round your answers to 4 decimal places. i. Alpha ii. Information ratio iii. Sharpe ratio iv. Treynor measure Stock A Stock B % %
When we test CAPM using historical data, a classic test is to regress excess returns of stocks onto the stock betas, using the following regression specification across stocks: - Rp Rf =α+By+ε where Rup - Rf is the average excess return of a security or portfolio, ẞ is the estimated beta of the security or portfolio, & is the regression residual, and a (Alpha) and y (Gamma) are regression coefficients. Based on the regression, which of the following statements are true if CAPM is true? Select all two correct statements. The Alpha is zero The Alpha is positive The Gamma is positive The Gamma is zero
Ahmed observed the following data of two stocks as shown in the below table. Which stock do you advise Ahmed to select according to the required rate of return? And explain why? (picture)
Which of the following stocks have the highest systematic risk? A. A stock with a high correlation to the market and a low return volatility. B. A stock with a low correlation to the market and a high return volatility. C. A stock with a high correlation to the market and high return volatility. D. A stock with a low correlation to the market and a low return volatility.
Assume the CAPM holds and consider stock X, which has a return variance of 0.09 and a correlation of 0.75 with the market portfolio. The market portfolio's Sharpe ratio is 0.30 and the the risk-free rate is 5%. (a) What is Stock X's expected return? (b) What proportion of Stock X's return volatility (i.e. standard deviation) is priced by the market? Explain why this number is less than 1.
What is the difference between stock price indexes that are simple averages of prices and those that are capitalization-weighted? Give examples of each.
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %
The last four years of returns for a stock are as shown here: a. What is the average annual return? b. What is the variance of the stock's returns? c. What is the standard deviation of the stock's returns? Note: Notice that the average return and standard deviation must be entered in percentage format. The variance must be entered in decimal format.
QUESTION 1 Under which of the following scenarios, the minimum variance portfolio that contains two stocks has the smallest standard deviation? OA. The correlation between the two stock returns is -1 OB. The correlation between the two stock returns is -0.2 OC. The correlation between the two stock returns is 0.2 OD. The correlation between the two stock returns is 0.5
Q3. Find the Expected Return, Variance, and Standard Deviation for the Stock Returns 1 and 2. Also, you are requested to find the Covariance and Coefficient of Variation with the following information. Probability Stock - 1 Stock - 2 42% 09% 01% 0.22 04% 39% 0.05 38% 47% 31% 41% 18%
Which of the following statements regarding standard deviation is TRUE: Group of answer choices A measure of the dispersion of a random variable The annualised volatility The square root of volatility Always expressed in %
pm.2

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS