Consider the following table, which gives a security analyst's expected return on two stocks and themarket index in two scenarios:Scenario Probability Market Return Aggressive Stock Defensive Stock10.57%3.7%5.5%3020.5BETA ABETA D20Required:a. What are the betas of the two stocks? (Round your answers to 2 decimal places.)14b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)Rate of Return on A %Rate of Return on D %

Beta of stock can be calculated as follows:Beta = Difference in security return / Difference in…

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 7% 3.7% 5.5% 2 0.5 BETA A BETA D 20 30 14 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? (Round your answers to 2 decimal places.)

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 7% 3.7% 5.5% 2 0.5 BETA A BETA D 20 30 14 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? (Round your answers to 2 decimal places.)

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 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.) Beta A : Beta D: b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.) % Rate of Return on A: % Rate of Return on B:
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% 2.6% 4.4% 2 0.5 16 27 14 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? (Round your answers to 2 decimal places.) c. If the T-bill rate is 7%, what are the alphas of the two stocks? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
onsider 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 7% 2.2% 5.0% 2 0.5 15 25 12 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? (Round your answers to 2 decimal places.)
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?
Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios: Aggressive Scenario 1 Probability Market Return 0.5 2 0.5 7% 20 Stock 3.2% Defensive Stock 5.0% 31 14 Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) Beta A Beta D 2.14 0.69 b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.) Rate of return on A Rate of return on D 17.10 % 9.50% c. If the T-bill rate is 7%, what are the alphas of the two stocks? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return Aggressive Stock -4% 38 6% 24 Aggressive stock Defensive stock a. What are the betas of the two stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Beta Aggressive stock Defensive stock Defensive Stock b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely to be 6% or 24%? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Expected Rate of Return 5% 13 % %
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Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return Aggressive Stock Defensive Stock 4% -2% 5% 25 36 11 a. What are the betas of the two stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Beta Aggressive stock Defensive stock b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely to be 4% or 25%? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Expected Rate of Return Aggressive stock % Defensive stock % e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if the two scenarios for the market return are equally likely? Also, assume a T-Bill rate of 5%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Hurdle rate…
Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns: Market Return 68 20 Aggressive Stock 2.0% 32 Defensive Stock 5.0% 15 a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) Beta A Beta D b. What is the expected rate of return on each stock if the market return is equally likely to be 6% or 20% ? (Round your answers to 2 decimal places.) Rate of return on A Rate of return on D
Consider the following table, which gives a security analyst’s expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return Aggressive Stock Defensive Stock 5% -3 4% 24 36 9 a. What are the betas of the two stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely to be 5% or 24%? (Do not round intermediate calculations. Round your answers to 1 decimal place.) c. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm’s stock if the two scenarios for the market return are equally likely? Also, assume a T-Bill rate of 4%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Suppose that you observe the following information in Table 2 for stocks A and B: Table 2 Expected Return (%) 11% Stock Beta A 0.8 B 14% 1.5 The risk-free rate of return is 6% and the expected rate of return on the market index is 12%. Using the Single-Index Model, calculate the alpha of both stocks. Show your calculations. Explain what the alpha of the single-factor model represents and interpret your results.
Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns: Market return Aggressive Stock Defensive Stock 7% 4% 2.5% 25 38 16 What is the expected rate of return on each stock if the market return is equally likely to be 7% or 25%?

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