Canadian PacificCSXKansas City SouthernNorfolk SouthernUnion PacificIndustry portfolioBeta1.071.180.971.331.091.13Standard Error0.180.240.200.180.160.14>TABLE 9.1 Estimates of betas and standard errors for a sample of railroad companies and for an equallyweighted portfolio of these companies, based on monthly returns from March 2015 to February 2020. Theportfolio beta may be more reliable than the betas of the individual companies. Note the lower standard error forthe portfolio. Page 27112. Measuring risk (S9.1) Look again at Table 9.1. This time we will concentrate on Union Pacific.a. Calculate Union Pacific's cost of equity from the CAPM using its own beta estimate and the industry beta estimate. Howdifferent are your answers? Assume a risk-free rate of 2% and a market risk premium of 7%.b. Can you be confident that Union Pacific's true beta is not the industry average?c. Under what circumstances might you advise Union Pacific to calculate its cost of equity based on its own beta estimate?

Canadian Pacific CSX Kansas City Southern Norfolk Southern Union Pacific Industry portfolio Beta 1.07 1.18 0.97 1.33 1.09 1.13 Standard Error 0.18 0.24 0.20 0.18 0.16 0.14 > TABLE 9.1 Estimates of betas and standard errors for a sample of railroad companies and for an equally weighted portfolio of these companies, based on monthly returns from March 2015 to February 2020. The portfolio beta may be more reliable than the betas of the individual companies. Note the lower standard error for the portfolio.

Canadian Pacific CSX Kansas City Southern Norfolk Southern Union Pacific Industry portfolio Beta 1.07 1.18 0.97 1.33 1.09 1.13 Standard Error 0.18 0.24 0.20 0.18 0.16 0.14 > TABLE 9.1 Estimates of betas and standard errors for a sample of railroad companies and for an equally weighted portfolio of these companies, based on monthly returns from March 2015 to February 2020. The portfolio beta may be more reliable than the betas of the individual companies. Note the lower standard error for the portfolio.

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 Microsoft Corporation (MSFT) and Meta Platforms, Inc. (META) that have returns variances of 6.25% and 3.24%, respectively. Calculate the standard deviation of portfolio returns for an equal-weighted portfolio of the two assets when their correlation of returns is 0. A. 24.71% B. 19.20% C. 15.40% D. 10.28%
Alternative 1 2 WN 3 Investment 100% of asset F 50% of asset F and 50% of asset G 50% of asset F and 50% of asset H Year 2019 2020 2021 2022 Asset F 10% 11% 12% 13% Historical Return Asset G 11% 10% 9% 8% Asset H 8% 9% 10% 11%
The historical returns for two investments-A and B-are summarized in the following table for the period 2016 to 2020, Use the data to answer the questions that follow. a. On the basis of a review of the return data, which investment appears to be more risky? Why? b. Calculate the standard deviation for each investment's returns. c. On the basis of your calculations in part b, which investment is more risky? Compare this conclusion to your observation in part a. a. On the basis of a review of the return data, which investment appears to be more risky? Why? (Choose the best answer below.) A. The riskier investment appears to be investment B, with returns that vary widely from the average relative to investment A, whose returns show less deviation from the average. B. Investment A and investment B have equal risk because the average returns are the same. C. The riskier investment appears to be investment A, with returns that vary widely from the average relative to investment B, whose…
Given the following information on a investment portfolio: Stock Name Expected returns $invested in stock Standard deviation of returntesla 15.5% 3750 10.3%microsoft 9.8% 5000 5.6%pfizer 13.8% 1250 12% Which stock should have the most systematic risk?
An investment firm uses the Carhart-Fama-French Model to track the performance of the portfolio managers in the firm. In 2019, the risk-free rate of return was 2.2% and the return on the S&P 500 (a proxy for the total market) was 28.9%. An actively managed large cap portfolio earned 32.8%, while the benchmark portfolio it was compared to earned 31.2%. The betas for the benchmark portfolio and the actively managed portfolio are: Betas Risk Factor benchmark portfolio managed portfolio factor return Market risk (RMRF) 1.00 1.05 ? Small cap stocks (SMB) -0.50 -0.70 -5.90% Value stocks (HML) 0.20 0.40 -6.35% Momentum stocks (WML) 0.10 0.20 6.44% What is the active return on the managed portfolio? What is the factor return for market risk (RMRF)? What proportion of the active return is due to the market risk tilt? What proportion of the active return is due to the large cap stocks tilt (the tilt away from small cap…
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Assume the market return is 14% with a standard deviation of 20%, and risk-free rate is 8%. The average annual returns for Managers D, E, and F are 13%, 17%, and 16% respectively. The corresponding standard deviations are 18%, 22%, and 23%. What are the Sharpe ratios for the market and managers?

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