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 -2% 5% 6% 25% 38% 12% (a) What are the betas of the two stocks? (b) What is the expected rate of return on each stock if the two scenarios for the market return are equally likely?

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 -2% 5% 6% 25% 38% 12% (a) What are the betas of the two stocks? (b) What is the expected rate of return on each stock if the two scenarios for the market return are equally likely?

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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*Stock A has a beta of 1.3 and an expected return of 10.2. Stock B has a beta of 0.8 and an expected return of 8.7. If these stocks are priced correctly according to the CAPM, what is the risk-free rate? Give your answer in percentage to the nearest basis point.
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 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? 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 market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%.
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 in two particular scenarios for the rate of return on the market: Market Return 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? 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 market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%. Complete this question by entering your answers in the tabs below. Required A Required B Required E What are the betas of the two stocks? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Aggressive stock Defensive stock Beta
Stock Y has a beta of 1.45 and an expected return of 13.50 percent. Stock Z has a beta of .70 and an expected return of 10 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
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:
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.23 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock beta
The Sharpe ratio of a stock is the same for all return horizons. Explain your answer. The prices of Arrow Debreu securities add up to one across all possible states Explain your answer.
Stock Y has a beta of 0.9 and an expected return of 9.46 percent. Stock Z has a beta of 2.1 and an expected return of 15.59 percent. What would the risk-free rate (in percent) have to be for the two stocks to be correctly priced relative to each other? Answer to two decimals.
a. Calculate the change in retur Security A's change in return w Data table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Security A BC Print Beta 1.63 0.62 -0.24 ---n Done X iod.
If markets are efficient then: All stocks will have the same expected returns All stocks will have the same risk Two stocks will the same volatility will have the same expected returns Two stocks with the same priced risks will have the same expected returns
The index model has been estimated for stocks A and B with the following results: RA 0.01 +0.5RM + A RB = 0.02 +1.3RM + eB standard deviation of the market is 0.25, standard deviation of eA is 0.2 and standard deviation of eB is 0.10 What is the covariance betwween the returns on stocks A and B?.

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