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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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
Consider the following information: State Probability Stock A Stock B Stock C Boom 0.32 0.09 -0.01 0.01 Bust 0.68 -0.05 0.28 0.03 What is the expected return of a portfolio that has invested $9,981 in Stock A, $6,817 in Stock B, and $2,123 in Stock C? (Hint: calculate weights of each stock first). Enter the answer with 4 decimals (e.g. 0.1234).
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
1 The information regarding the risk level of three different stocks is presented below. 1. Which stock has the highest level of risk? Interpret the beta of that stock. 2. Which stock has the level of risk that is closest to the market level of risk? How do we measure the market level of risk? Beta Standard Deviation Flylnc 2.1 15.8% Airco 1.1 17.3% SkyCorp 0.8 21.5%
Suppose you have predicted the following returns for stock C in three possible states of nature. What is the expected return of stock C? State Probability Return Boom 0.3 0.15 Normal 0.5 0.10 Recession 0.2 0.02
Consider the following information: State Probability Stock A Stock B Stock C Boom 0.32 0.17 -0.11 -0.06 Bust 0.68 -0.03 -0.01 0.23 What is the expected return of a portfolio that has invested $16,157 in Stock A, $19,654 in Stock B, and $9,659 in Stock C? (Hint: calculate weights of each stock first). Enter the answer with 4 decimals (e.g. 0.1234).
only typed answer Stock A's stock has a beta of 1.30, and its required return is 15.25%. 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. 11.15% b. 11.18% c. 11.21% d. 11.24% e. 11.27%
Consider the following information: State Probability Stock A Stock B Stock C Boom 0.65 0.26 -0.1 -0.08 Bust 0.35 0.15 0.16 0.18 What is the expected return on an equally weighted portfolio of these three stocks? (Hint: Equally means that each stock has the same weight. Given that there are only 3 stocks, each has a weight of 1/3) Enter the answer with 4 decimals (e.g. 0.1234).
U Assume CAPM holds. We know expected return and beta of two stocks: Stock A: E[ra] = 10% and beta_a = 1.5 Stock B: E[rb] = 5% and beta_b = 0.5 What would be the expected return of a stock that has a beta of 0.9? O 6.5% Ⓒ7% O 7.5% O 6% Question 5 Which of the following statements is false? o The CAPM follows from equilibrium conditions in a frictionless mean-variance economy with rational investors According to CAPM, everyone should hold a mix of the market portfolio and the risk-free asset. According to CAPM, everyone can generate positive return by buying positive alpha stocks and by selling negative alpha stocks. According to CAPM, the expected return on a stock is a linear function of its beta.
Consider 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 6% 2.0% 5.0% 2 0.5 20 32 15 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?
Please do stepwise and correct please ill like.. pls correct
Suppose your expectations regarding the stock price are as follows: HPR (including dividends) State of the Market Boom Normal growth Recession Probability Ending Price 0.35 0.30 0.35 Mean Standard deviation Use the equations E (r) = Ep (s) r(s) and o² = Ep (s) [r(s) – E(r)]² to compute the mean and standard deviation of the HPR S S on stocks. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. do do $ 140 110 80 % 44.5% 14.0 -16.5 %

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