Please correct answer and don't used hand raiting I3. Consider the data for two companies below. The T-bill rate is 4% and the S&P returns14.5%RA= 18.25%σA= 14%BA = 1.5•RB = 12.75%σβ= 8%BB=0.75a) What is the Jensen's Alpha for each stock?b) What is the Treynor Ratio for each stock?c) Indicate whether A and B are undervalued, correctly valued orovervalued.d) Is there an arbitrage opportunity? What would you do to profit?

a) Jensen's Alpha:Stock A:= RA - [Rf + βA(Rm - Rf)]= 18.25% - [4% + 1.5(14.5% - 4%)]= 18.25% - [4% +…

Answered: I 3. Consider the data for two…

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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What is the formula for Price to Book Value ( MV/BV) ratio ? If Current Price = 126, Total Equity = 20.000.000E , and number of shares =2.000.000 %3D compute the P/ BV and interpret it.
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Given the re-stated information below (and expected returns you should have already calculated), what is the correlation between Stock A and B returns? Enter correlation rounded to 4th digit, as in "0.1234"
Suppose you are given the following information about 2 stocks, what weight would you invest in stock A (with the rest going into stock B) to maximize the Sharpe Ratio? E(RA)=16% E(RB)=8% σA=22% σB=12% σA,B=−0.003696 rf=3% Enter weight in decimal form, rounded to 4th digit, as in "0.1234"
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Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.6% + 1.20RM + eA RB = -1.6% + 1.50RM + eB OM = 16%; R-squareд = 0.25; R-squarep = 0.15 What is the covariance between each stock and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round your intermediate calculations. Round your answers to nearest whole number. Stock A Stock B Covariance
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