Consider the following collection of n = 9 closing prices for stock ABC:101.02, 102.23, 100.34, 99.87, 98.65, 96.45, 98.45, 99.00, 100.05Compute the standard estimator of the volatility parameter σ using these closing prices.

Consider the following collection of n = 9 closing prices for stock ABC:101.02, 102.23, 100.34, 99.87, 98.65, 96.45, 98.45, 99.00, 100.05Compute the standard estimator of the volatility parameter σ using these closing prices.

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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You run a regression for the Tesla stock return on a market index to estimate the SML equation and find the following Excel output: Multiple R R-Square Adjusted R-Square Standard Error Observations Intercept Market = 0.28 0.25 0.02 40.01 60 13.35 and 0.97 0.8 and 0.1 0.28 and 0.25 0.26 and 1.36 0.2 and 0.75 Coefficients Standard Error t-Stat p-Value 0.2 0.75 The resulting SML equation for Laternios is given by: Er Laternios] 13.35 0.26 0.80 0.97 1.36 0.10 + __ × (E[rM] - rf)
Expected Returns: Discrete Distribution The market and Stock J have the following probability distributions: Probability rM rJ 0.3 15% 20% 0.4 9 7 0.3 18 10 Calculate the expected rates of return for the market and Stock J. Round your answers to one decimal place. Expected rate of return (Market): % Expected rate of return (Stock J): % Calculate the standard deviations for the market and Stock J. Do not round intermediate calculations. Round your answers to two decimal places. Standard deviation (Market): % Standard deviation (Stock J): %
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 14.0% 13.0 .8.5 12.0 7.2 Ор 39.00% 34.00 24.00 29.00 0 Bp 1.50 1.15 0.90 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.90. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. R-squared
The index model has been estimated using historical excess return data for stocks A, B, and C, with the following results: RA = 0.02 + 0.9RM + eA RB = 0.04 + 1.2RM + eB RC = 0.10 + 1.ORM + eC OM oM = 0.22 o(eA) = 0.21 o(eB ) = 0.11 o(eC ) = 0.23 a. What are the standard deviations of stocks A, B, and C? b. Break down the variances of stocks A, B, and C into their systematic and firm-specific components. c. What is the covariance between the returns on each pair of stocks? d. What is the covariance between each stock and the market index?
A stock's returns have the following distribution: Demand for theCompany's Products Probability of thisDemand Occurring Rate of Return ifthis Demand Occurs Weak 0.1 (36%) Below average 0.1 (11) Average 0.4 17 Above average 0.3 27 Strong 0.1 56 1.0 Assume the risk-free rate is 3%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places. Stock's expected return: % Standard deviation: % Coefficient of variation: Sharpe ratio:
Consider the following probability distribution for stocks A and B: Table 4 Probability Distribution for Stocks A and B State Probability Return on Stock A Return on Stock B 1 0.1 10% 8% 2 0.2 13% 7% 3 0.2 12% 6% 4 0.3 14% 9% 5 0.2 15% 8% The variances of Stocks A and B are _____ and _____, respectively. Group of answer choices .015%; .019% .022%; .012% .032%; .02% .015%; .011% .014%; .021%
Consider the discrete-time binomial tree model with three periods of length 1, i.e. T = 3 and t = 0, 1, 2, 3. In each period the price can move up or down, St+1 is either uSt or dSt. Assume that the factor for moving up is u = 4/3, the factor for moving down is d = 3/4, and that the interest rate is r = 0.0. The initial stock price is So = 1. (a) Compute the price process (i.e. prices at all times and states) for a European Put option on the stock with strike price K = 1 and maturity T = 3. (x - ž) (b) Compute the price at time t = 0 of the Australian option K with ST K = 1. Note: As this option is path dependent, you will not be able to use the recursive method, nor will you be able to use the CRR formula.
6
Assume the CAPM holds and consider stock X, which has a return variance of 0.09 and a correlation of 0.75 with the market portfolio. The market portfolio's Sharpe ratio is 0.30 and the the risk-free rate is 5%. (a) What is Stock X's expected return? (b) What proportion of Stock X's return volatility (i.e. standard deviation) is priced by the market? Explain why this number is less than 1.
A stock's returns have the following distribution: Demand for theCompany's Products Probability of thisDemand Occurring Rate of Return ifthis Demand Occurs Weak 0.1 (28%) Below average 0.1 (10) Average 0.4 12 Above average 0.3 22 Strong 0.1 55 1.0 Assume the risk-free rate is 3%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places. Stock's expected return: % Standard deviation: % Coefficient of variation: Sharpe ratio:
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.6% + 1.2RM + eA RB = -1.6% + 1.5RM + eB OM = 16%; R-squarea = 0.25; R-square; = 0.15 What is the covariance between each stock and the market index? (Calculate using numbers in decimal form, not percentages. Do not round your intermediate calculations. Round your answers to 3 decimal places.) Covariance Stock A Stock B

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