Two investment advisers are comparing performance. One averaged a 19% rate of returnand the other a 16% rate of return. However, the beta of the first investor was 1.5, whereasthat of the second was 1.a) Can you tell which investor was a better selector of individual stocks (aside from theissue of general movements in the market)?b) If the T-bill rate were 6% and the market return during the period were 14%, whichinvestor would be the superior stock selector?c) What if the T-bill rate were 3% and the market return were 15%?

Mean is the average of returns of a stock. Beta is the systematic risk, which indicates movement of…

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Can you tell which investor was a better selector o

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

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Question

Two investment advisers are comparing performance. One averaged a 19% rate of return
and the other a 16% rate of return. However, the beta of the first investor was 1.5, whereas
that of the second was 1.
a) Can you tell which investor was a better selector of individual stocks (aside from the
issue of general movements in the market)?
b) If the T-bill rate were 6% and the market return during the period were 14%, which
investor would be the superior stock selector?
c) What if the T-bill rate were 3% and the market return were 15%?

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Two stock investment advisers are comparing performance. The first averaged a 19% rate of return and the second a 16% rate of return. However, the beta of the first investor was 1.5, whereas that of the second investor was 1.(a) Can you tell which investor was a better selector of individual stocks (aside from the issue of general movements in the market)? Explain your answer carefully.(b) If the T-bill rate was 3% and the market return during the period was 15%,which investor would be considered the superior stock selector?
Assume that you run a regression on the raw returns of the stock of Company J against the raw returns of the market and find an intercept of 1.324 percent and a beta of 2.36. If the risk-free rate is 2.64 percent, and using the concept of Jensen's Alpha, then determine by how much this stock beat the market. Answer in decimal format. For example, if you answer is 3.33%, enter "0.0333"
Assume that you run a regression on the raw returns of the stock of Company J against the raw returns of the market and find an intercept of 1.324 percent and a beta of 1.25. If the risk-free rate is 2.64 percent, and using the concept of Jensen's Alpha, then determine by how much this stock beat the market. Answer in decimal format, to 4 decimal places. For example, if you answer is 3.33%, enter "0.0333".
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. i. Alpha ii. Information ratio iii. Sharpe ratio iv. Treynor measure Stock A a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.) % Stock A 1% +1.2(rm rf) % 0.635 11.3% 22.6% Stock B % % Stock B 2% +0.8( rm -rf) b. Which stock is the best choice under the following circumstances? 0.466 20.1% 26.9% i. This is the only risky asset to be held by the investor. ii. This stock will be mixed with the rest of the investor's portfolio, currently composed solely of holdings in the market-index fund. iii. This is one of many stocks that the investor is analyzing to form an actively managed stock…
Two investment advisors are comparing performance Advisor A averaged a 17% return with a portfolio beta of 1.5 and Advisor B averaged a 15% return with a portfolio beta of 1.2. If the T-bill rate was 5% and the market return during the per was 13%, which advisor was the better stock picker? Advisor B was better because he achieved a good return with a lower beta Advisor Awas netter because he generated a larger alpha Advisor A was better because he generated a higher retum Advisor B was better because he generated a larger alpha
You are conducting some statistical analyses on two securities: Stock X and Stock Y. You find that Stock X has a volatility (i.e., a standard deviation) of 5.78%, while Stock Y has a volatility of 7.94%. If the correlation between the returns of the two firms is 0.25, then what is the covariance between the returns of the two firms closest to? O 0.0011 0.0021 O 11.47 O 21.55 0
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pm.2
Consider the two (excess return) Index-model regression results for stocks A and B. The risk-free rate over the period was 4%, and the market's average return was 11%. Performance is measured using an Index model regression on excess returns. Stock A Stock B Index model regression estimates R-square 1% +1.2(rm -rf) 2% +0.8(M-r) Residual standard deviation, d(e) Standard deviation of excess returns 0.683 12.1% 23.4% 0.49 20.9% 28.5% Required: a. Calculate the following statistics for each stock: b. Which stock is the best choice under the following circumstances? Answer is complete but not entirely correct. 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. Stock A Stock B i. Alpha 1.0000 % 2.0000 % ii. Information ratio 0.0826 0.0957 iii. Sharpe ratio 0.4017 0.2667 iv. Treynor measure 0.0783x 0.0950 x
You ran a regression of the excess return on Walmart's stock on the excess return on the market. You found the following: alpha=1.5%, beta-2.818, R^2=0.623. If Walmart's total volatility was 0.310 in that same period, what must have been the markets volatility in that same period.
Stock A has expected return of 15% and standard deviation (s.d.) 20%. Stock B has expected return 20% and s.d. 15%. The two stocks have a correlation coefficient of 0.5. 1.Note that Stock A has greater risk (s.d.) that Stock B, but a lower expected return. Explain how is this possible in a world where returns on assets are as predicted by the CAPM. 2. Determine the expected return and the s.d. of portfolio P1, composed by investing 30% in stock A and 70% in stock B. 3. Consider stock C that has expected return 15% and s.d. 15%. Stock C is uncorrelated with either stock A and stock B. Determine the expected return and s.d. of portfolio P2 made by investing 50% in stock C and 50% in portfolio P1.
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