An investor predicts that the price of Hologic (HOLX) stock will exhibit unusually low volatility in the coming few weeks. Which of the following is the best strategy for the investor to profit from this expectation?
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- If a stock's expected return plots on or above the SML, then the stock's return is SML, the stock's return is to compensate the investor for risk. cent to compensate the investor for risk. If a stock's expected return plots below the The SML line can change due to expected Inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the amount of debt it uses. Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE): Tar 4%; 10 % ; RPM 6%, and beta - 1.1 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. -75 % If inflation…Consider an event study of the following stock. Realised return Market return t = 0 (event day) 0.1 0.1 t =1 0.06 0.04 t = 2 0.03 0.02 t = 3 0.015 0.01 Suppose that the estimated market model is . What is the CAR (cumulative abnormal returns) for t = 3?Assume the market rate of return is 10.1 percent and the risk-free rate of return is 3.2 percent. Lexant stock has 2 percent less systematic risk than the market and has an actual return of 10.2 percent. This stock: O is underpriced O is correctly priced. O will plot below the security market line. O will plot on the security market line. A Moving to another question will save this response. Question 4 of 30
- A stock market analyst is using a exponential smoothing and wanting to give a quick read out on a stock their firm is looking to invest in. The analyst finds that their last predicted closing price on the stock was below the actual price. What should the analyst know about their next prediction on the closing price of the stock? Otheir next forecast will be Otheir next forecast will be more than their latest prediction. O their next forecast will be greater than the actual price their next forecast will be less than their latest prediction. less than the actual pricePlease first fill in the spaces in the following table by assigning probabilities foreach scenario and assigning returns for stocks A and B, depending on your own choice. (The useof same probabilities and return data by different students will be treated as a cheat attempt andwill be penalized severely). Then, solve the following questions.Scenario Probability RA (%) RB (%)RecessionNormalBoom a) What is the expected return for Stock A (E(RA))?b) What is the expected return for Stock B (E(RB))?c) What is the covariance between the returns of Stock A and B?You have been provided the following information as part of a consultation query:The risk free rate is 3.2%The market risk premium (rM - rRF) is 5.3%Stock A - has a beta of 1.2 betaStock B - has a beta of 0.85 beta (a). What is the required rate of return on each stock? (b). Assume that investors become less willing to take on risk (ie., they become more riskaverse), so the market risk premium rises 6%. Assume that the risk-free rate remains constant. What effect will this have on the required rates of return on the two stocks?
- Assume that you are considering investing in two risky assets, namely PKX and XIY, with the following probability distribution. Assume that short selling is allowed. Stock РКХ XIY State of the world Probability Return (%) Return (%) 1 0.25 18 2 0.30 5 -3 3 0.20 12 15 4 0.10 4 12 0.15 6 1 1. Calculate the expected return and risk for each of these assets. Interpret. 2. Consider a portfolio that contains PKX and XIY. Note that XIY comprises 30% of the portfolio. What is the expected return and risk of this portfolio? 3. How will your answer in (2) change if XIY comprises 20% of the portfolio only? Comment on your findings.(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.) ew an example Get more help. T 3 a. Given the information in the table, the expected rate of retum for stock A is 15.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.) E D 80 73 Return. 12% 16% 18% U с $ 4 R F 288 F4 V Common Stock B % 5 T FS G 6 Return -7% 7% 13% 21% B MacBook Air 2 F& Y H & 7 N 44 F? U J ** 8 M | MOSISO ( 9 K DD O . Clear all : ; y 4 FIX { option [ + = ? 1 Check answer . FV2 } ◄ 1 delete 1 return shiftAssume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur? a. The required return on a stock with beta = 1.0 will not change. b. The required return on a stock with beta > 1.0 will increase. c. The return on "the market" will increase. d. The return on "the market" will remain constant. e. The required return on a stock with a positive beta < 1.0 will decline.
- Please answer fast I give you upvote.An investor buys a stock if price rises 5% from the 250-day low and shorts a stock if price falls 5% from the 250-day high. What is this strategy called? Will it work if the market is efficient? Explain why(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.) Common Stock B Return 13% 14% 18% Return - 6% 7% 15% 21% a. Given the information in the table, the expected rate of return for stock A is 14.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.)