Assume that the CAPM is a good description of stock price returns. The expected market risk premium is 5% with 20% volatility and the risk-free rate is 3%. News arrives and it only changes the expected returns of the following stocks: No. 1 2 Stock Name ABC XYZ Expected Volatility Beta return 8% 13% 60% 1.5 30% 1 Which of the following statement(s) is (are) TRUE? Select one or more alternatives: 1 presents a selling opportunity while 2 presents a buying opportunity. Both 1 and 2 are (short-)selling opportunities.

Assume that the CAPM is a good description of stock price returns. The expected market risk premium is 5% with 20% volatility and the risk-free rate is 3%. News arrives and it only changes the expected returns of the following stocks: No. 1 2 Stock Name ABC XYZ Expected Volatility Beta return 8% 13% 60% 1.5 30% 1 Which of the following statement(s) is (are) TRUE? Select one or more alternatives: 1 presents a selling opportunity while 2 presents a buying opportunity. Both 1 and 2 are (short-)selling opportunities.

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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Consider the expected return for two stocks in two different market conditions: Aggressive Stock Market Return. 9% 18% Risk Free Rate 4% 7% 32% Defensive Stock 5% 16% 4 a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the market return is equally likely to be 9% or 18%? c. What are the alphas of each?
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
1. Assume stock prices follow a random walk and a particular stock has had the following recent stock prices: Day 1: 129.5 Day 2: 126.9 Day 3: 127.1 what is the best estimate of day 4 prices? 2. What is a stock's realized abnormal return if the stock had a 3% return and the stock had a Beta=1.24, an Alpha=0 and the excess market return was 3.3%. assume the risk free rate is 0%. Please use 5 decimal places in your response. Please write negative returns using the "-" symbol, so a negative 1% return would be written as -.01 2. If the yield to maturity for a two year zero coupon bond is 5.8% and the yield to maturity for a 3 year zero coupon bond is 6.1%, what is the implied future short rate from year 2 to 3 (use 5 decimal places, write 3.333% as .03333)?
Assume that the CAPM is a good description of stock price returns. The market expected return is 7% with 10% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers but it does change the expected return of the following stocks: - a. Calculate the alpha for each stock in the table. b. At current market prices, which stocks represent buying opportunities? On which stocks should you put a sell order in? a. Calculate the alpha for each stock in the table. Complete the table with the alphas below: (Round to two decimal places.) Green Leaf Expected Return Volatility 12% 20% Beta Alpha 1.50 %% Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Expected Return Volatility Beta Green Leaf 12% 20% 1.50 NatSam 10% 40% 1.80 HanBel 9% 30% 0.75 Rebecca Automobile 6% 35% 1.20 - X
onsider the following table, which gives a security analyst’s expected return on two stocks and the market index in two scenarios: Scenario Probability Market Return Aggressive Stock Defensive Stock 1 0.5 7% 2.2% 5.0% 2 0.5 15 25 12 Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)
Consider the following information: Stock Return if Market Return Is: Stock –13% 10% A 0 14 B –5 21 C –25 36 D 10 8 E 15 -10 What is the beta of each of the stocks? (Leave no cells blank - be certain to enter "0" wherever required. Use decimals, not percents, in your calculations. A negative value should be indicated by a minus sign. Round your answers to 1 decimal place.) Stock Beta A B C D E
2. Based on the following information calculate the expected return and standard deviation for the two stocks: State of economy Probability of state of economy Rate of return if state occur Stock A Stock B -.17 .12 .29 Recession Normal Boom 3. How should the price of a stock change when it goes ex-dividend? 4. Suppose stock in Gamma Air Freight has a beta of 1.25. the market risk premium is 7% and the risk free rate is 6%. Alpha's last dividend was $2 per share and the dividend is expected to grow at 8% indefinitely. The stock currently sells for $30. What is Gamma's cost of equity capital? .05 .65 .30 .05 .08 .13
Stock A's stock has a beta of 1.30, and its required return is 13.75%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B's stock? (Hint: First find the market risk premium.) Select the correct answer. a. 10.26% b. 10.32% c. 10.29% d. 10.35% e. 10.38%
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Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (7 %) (26 %) 0.1 3 0 0.5 14 22 0.2 20 26 0.1 36 50 Calculate the expected rate of return, , for Stock B ( = 14.20%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.68%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. If Stock B is more highly correlated with the market than A, then it might have a higher…
The returns on each of the three stocks are positively correlated, but they are not perfectly correlated. Expected Standard Stock Return Deviation Beta Stock A 10% 20% 1.0 Stock B 10 20 1.0 Stock C 12 20 1.4 The risk-free rate is 5%. The required returns equal expected returns. What is the market risk premium? а. 4.0% b. 4.5% C. 5.0% d. 5.5% A stock has an expected return of 12% percent. The beta of the stock is 1.2 and the risk-free rate is 7%. What is the market risk premium? а. 2.50% b. 3.50% С. 4.17% d. 5.33% Calculate the beta of the stock that has a required rate of return of 14%. The risk-free rate of return is 5% and that the market risk premium is 7%. а. 1.25 b. 1.29 С. 1.50 d. 1.83

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