For a price-weighted index, when a lower-price stock is replaced by a higher-price stock, which of thefollowing will is true?1. The divisory will go upII. The index will go upIII. The divisor will go downIV. The index will go downOI onlyO I and II onlyO III onlyIII and IV only

One common type of stock market index is the price-weighted index, where stocks are weighted based…

For a price-weighted index, when a lower-price stock is replaced by a higher-price stock, which of the following will is true? 1. The divisor will go up II. The index will go up III. The divisor will go down IV. The index will go down OI only OI and II only O Ill only O III and IV only

For a price-weighted index, when a lower-price stock is replaced by a higher-price stock, which of the following will is true? 1. The divisor will go up II. The index will go up III. The divisor will go down IV. The index will go down OI only OI and II only O Ill only O III and IV only

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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Stocks A and B have the following data. Assuming the stock marketyls efficient and the stocks are in equilibrium, which of the following statements is CORRECT? \table[[,A,B
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?
Use the put-call parity relationship to demonstrate that an at-the-money call option on a nondividend-paying stock must cost more than an at-the-money put option. Show that the prices of the put and call will be equal if S0 = (1 + r)T..
In a binomial tree created to value an option on a stock, what is the expected return on the option? O Zero O The return required by the market O The risk-free rate O It depends on the volatility AL
All else equal, a higher required rate of return would reduce the price of: I. Corporate bondsII. Preferred stockIII. Common stock Select one: A. I only B. I and II only C. I and III only D. I, II, and III
Consider the two stocks below. Which has a positive beta (i.e., tends to move in the same direction as the market)? Which has a higher R2 (1.e., market returns explain more of its return patterns)? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. Stock 1 has a positive beta and a higher R² a b C d Stock 2 has a positive beta and a higher R² Stock 1 has a positive beta, but Stock 2 has a higher R Stock 2 has a positive beta, but Stock 1 has a higher R² ft RM Stock 2 Stock 1 Par
8. Is the following statement correct, wrong or partially correc? Why? "If the volatility of Stock A is higher than that of Stock B, the expected return of Stock A should be higher than that of Stock B." [8]
If the stock price increases, the price of a put option on that stock ________ and that of a call option _________. decreases, increases decreases, decreases increases, decreases increases, increases
Based on the information in the previous question, Stock Z is currently... Group of answer choices underpiced overpriced correctly priced
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
Given the following information on five stocks, construct: a. A simple price-weighted average b. A value-weighted average c. A geometric average d. What is the percentage increase in each average if the stock prices change to those in Column I? e. What is the percentage increase in each average if the stock prices change from those in the Price column to those in Column II? f. Why were the percentage changes different in parts (d) and (e)? g. If you were managing a fund and wanted a source to compare your results to, which of the three averages would you prefer to use, and why? Stock Price # of Shares I II A B C D E F $12.00 150,000 $14.00 125,000 $11.00 200,000 $ 22.00 80,000 $8.00 30,000 $29.00 140,000 $12.00 $12.00 $14.00 $14.00 $20.00 $11.00 $ 22,00 $ 22.00 $8.00 $15.00 $29.00 $29.00
8. Holding everything else equal, the increase in the volatility (variance) of the underlying stock will cause A.value of a put option decreases and that of a call option increases. B.value of both a put option and a call option increase. C.value of a put option increases and that of a call option decreases. D.value of both a put option and a call option decrease.

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