Consider the following sample of annual holding period returns on Masco (a corporation) and theS&P500 Stock Index (includes dividends and capital gains). Assume that the Market Portfiolio iscomposed of individual US stocks only, so that the S&P 500 Stock Index is a good proxy of theMarket Portfolio.Dater S&P5001-Nov-071-Nov-061-Nov-051-Nov-043-Nov-031-Nov-021-Nov-011-Nov-001-Nov-992-Nov-983-Nov-971-Nov-961-Nov-951-Nov-941-Nov-932-Nov-921-Nov-911-Nov-901-Nov-891-Nov-882-Nov-87-0.07490.01650.03520.03860.00710.05710.0752-0.08010.01910.05910.04460.07340.0410-0.0395-0.01290.0303-0.04390.05990.0165-0.0189-0.0853r Masco-0.07560.03740.04440.0294-0.0109-0.01880.06260.0331-0.16840.02420.07240.16410.0488-0.06400.07480.0693-0.12030.06750.0146-0.0806-0.1607a) Use Excel to calculate Masco's beta given the data above.b) Use the data sample and your answer to b) to estimate the expected return on Mascostock according to the CAPM and according to the historical method. Assume that therisk-free rate is 4.5% per year.What is the alpha of Masco? Is the stock underpriced or overpriced according to theCAPM?

The unpredictability or fluctuation of investment results is referred to as risk. Investments with a…

Consider the following sample of annual holding period returns on Masco (a corporation) and the S&P500 Stock Index (includes dividends and capital gains). Assume that the Market Portfiolio is composed of individual US stocks only, so that the S&P 500 Stock Index is a good proxy of the Market Portfolio. Date r S&P500 1-Nov-07 1-Nov-06 1-Nov-05 1-Nov-04 3-Nov-03 1-Nov-02 1-Nov-01 -0.0749 0.0165 0.0352 0.0386 0.0071 0.0571 0.0752 r Masco -0.0756 0.0374 0.0444 0.0294 -0.0109 -0.0188 0.0626

Consider the following sample of annual holding period returns on Masco (a corporation) and the S&P500 Stock Index (includes dividends and capital gains). Assume that the Market Portfiolio is composed of individual US stocks only, so that the S&P 500 Stock Index is a good proxy of the Market Portfolio. Date r S&P500 1-Nov-07 1-Nov-06 1-Nov-05 1-Nov-04 3-Nov-03 1-Nov-02 1-Nov-01 -0.0749 0.0165 0.0352 0.0386 0.0071 0.0571 0.0752 r Masco -0.0756 0.0374 0.0444 0.0294 -0.0109 -0.0188 0.0626

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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SECURITY MARKET LINE You are given the following historical data on market returns, r, and the returns on Stocks A and B, r, and rp: 8A-2 M' A Year 1 29.00% 29.00% 20.00% 2 15.20 15.20 13.10 (10.00) (10.00) 0.50 4 3.30 3.30 7.15 5 23.00 23.00 17.00 31.70 31.70 21.35
Review the following market information: Current Stock Market Return 11.25% Current T-Bill Price $979.43 Historic T-Bill Average Return 2.80% Historic Stock Market Average Return 8.10% Stock Beta 1.23 What is the required return (rounded to two places)?
A stock has had returns of 16.72 percent, 12.20 percent, 5.90 percent, 26.86 percent, and –13.49 percent over the past five years, respectively. What was the holding period return for the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Holding-period return %
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
Consider the following information on large-company stocks for a period of years. Arithmetic Mean 12.78 3.3 Large-company stocks Inflation a. What was the arithmetic average annual return on large-company stocks in nominal terms? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What was the arithmetic average annual return on large-company stocks in real terms? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Nominal return b. Real return 12.70% 10.26 %
Question 2. Consider the data in the table bolow, which shows the relevant data for the stocks of six firms: GE, Apple, Bank of America, Exxon, Pfizer, and Home Depot. Rf is the risk-free rate and Ap:/p;is the growth rate of the stock price. Additionally, the table has the actual market price of each stock (PM) as of September 2016. Use the stock price arbitrage equation to calculate the no-arbitrage price of each stock. Given your answer, should you buy the stock or put the money into a safe asset? Firm Dividend RF Ap:/ps рм GE 0.38 4.2 3.18 32.1 Apple 2.03 4.2 2.04 106.1 Bank of America 0.2 4.2 3.4 15.9 Еxxon 0.75 4.2 3 87.5 Pfizer 1.12 4.2 1.5 35.7 Home Depot 1.78 4.2 3.01 135 Source: Morningstar, Sept. 1, 2016.
Intro We know the following expected returns for stocks A and B, given different states of the economy: State (s) Probability E(rA.s) E(rB,s) -0.1 0.04 0.08 0.05 0.13 0.07 Recession 0.2 Normal 0.5 Expansion 0.3 Part 1 What is the expected return for stock A? 3+ decimals Submit
What is the standard deviation of the returns on a stock given the following information? State of Economy Probability of State of Economy Rate of Return if State Occurs Boom .08 .171 Normal .70 .076 Recession .22 .017
Please complete in Excel (and show work): If returns of S&P 500 stocks are normally distributed, what range of returns would you expect to see 95% of the time? Base your answer on Figures 11.3 (left) and 11.4 (right).
A stock has had the following year-end prices and dividends: Year Price $ 64.98 123456 Dividend 71.85 $ .73 77.65 .78 63.92 .84 74.41 .93 86.25 1.00 What are the arithmetic and geometric returns for the stock? Note: Do not round intermediate calculations and enter your al
A stock has had the following year-end prices and dividends: Year Price Dividend 1 $43.33 2 48.31 $0.54 3 57.23 0.57 4 45.31 0.80 5 52.23 0.85 6 61.31 0.93 What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Arithmetic return Geometric return % %
Consider the three stocks in the following table. P(t) represents price at time t, and Q(t) represents shares outstanding at time t. Stock C splits two-for-one in the last period. What is the rate of return for the price-weighted index that is formed using Stocks A, B, and C from time period 1 to time period 2? B C zero P(1) 95 45 100 -20.83% 20.83% None of the above Q(1) 100 200 200 P(2) 95 45 50 Q(2) 100 200 400

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