In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate ofreturn on Apex was rд = 3.7%. The rate of return on Bpex was only r = 3.1%. The market today responded to very encouraging newsabout the unemployment rate, and = 3.4%. The historical relationship between returns on these stocks and the market portfolio hasbeen estimated from index model regressions as:Apex: A = 0.4% + 1.4rMBpex: rB = -0.1% + 0.7rMa. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.)ApexBpexPredicted Returns%%

As per index model regression ,Relationship between expected return and beta is as follows:-Rs =…

In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was ra = 3.7%. The rate of return on Bpex was only rB = 3.1%. The market today responded to very encouraging news about the unemployment rate, and M= 3.4%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: A 0.48 + 1.4rM Bpex: rg = -0.1% + 0.7rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Apex Врех Predicted Returns % %

In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was ra = 3.7%. The rate of return on Bpex was only rB = 3.1%. The market today responded to very encouraging news about the unemployment rate, and M= 3.4%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: A 0.48 + 1.4rM Bpex: rg = -0.1% + 0.7rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Apex Врех Predicted Returns % %

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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Suppose that Federal Reserve actions have caused an increase in the risk-free rate, rRF. Meanwhile, investors are afraid of a recession, so the market risk premium, (rM − rRF), has increased. Under these conditions, with other things held constant, which of the following statements is most correct? a. The required return on all stocks would increase, but the increase would be greatest for stocks with betas of less than 1.0. b. Stocks' required returns would change, but so would expected returns, and the result would be no change in stocks' prices. c. The prices of all stocks would decline, but the decline would be greatest for high-beta stocks. d. The prices of all stocks would increase, but the increase would be greatest for high-beta stocks. e. The required return on all stocks would increase by the same amount.
A security analyst has regressed the monthly returns on Exxon Mobil equity shares over the past five years against those on the Standard & Poor's 500 stock index over the same period. The resulting regression equation is rEM = 0.08 + 1.44 rSP. Use this equation to estimate Exxon Mobil's equity beta.
You ran a regression of the excess return on Walmart's stock on the excess return on the market. You found the following: alpha=1.5%, beta-2.818, R^2=0.623. If Walmart's total volatility was 0.310 in that same period, what must have been the markets volatility in that same period.
Assume that the CAPM is a good description of stock price returns. The market expected return is 7% with 10% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers but it does change the expected return of the following stocks: - a. Calculate the alpha for each stock in the table. b. At current market prices, which stocks represent buying opportunities? On which stocks should you put a sell order in? a. Calculate the alpha for each stock in the table. Complete the table with the alphas below: (Round to two decimal places.) Green Leaf Expected Return Volatility 12% 20% Beta Alpha 1.50 %% Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Expected Return Volatility Beta Green Leaf 12% 20% 1.50 NatSam 10% 40% 1.80 HanBel 9% 30% 0.75 Rebecca Automobile 6% 35% 1.20 - X
An antitrust case has lead to you having to calculate a fair return (using the CAPM) for RadioEthiopea common stock. The risk free rate is 3.20%, while the expected return on the market is 4.70%. The shares have a volatility of 21.00%, while the market has a volatility of 13.00%. The correlation between the two sets of returns is 0.44. What is the fair return for RadioEthiopea common stock?
A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.1. a. If the market return increased by 13%, what impact would this change be expected to have on the asset's return? b. If the market return decreased by 9%, what impact would this change be expected to have on the asset's return? c. If the market return did not change, what impact, if any, would be expected on the asset's return? d. Would this asset be considered more or less risky than the market?
Tou have observed the cumulative abnormal returns graphed below surrounding the announcement of a new CEO for all publicly traded frms in the US from 1990 to 2020. The average CAR is plotted relative to the event date (0 on the higure). Chart A uses the CAPM to calculate expected returns Chart Buses the Fama-French 3-factor Model to calculate expected returns. Based on this evidence, what can we conclude about market efficlency Chart A Chart B 4.00% 5.00% 3.00% 4,00% 3,00% 200% 200% 1.00% 1.00% 0.00% 0.00% -12 -8 -4 8. 12 -12 -8 -4 4. 8 12 O Looking at Chart A, we can conclude that the market is definitely efficient, because there is no change in CAR after the event O Looking at Chart B, we can conclude that the market is definitely inefficient, because the CAR continues to increase after the event We can conclude nothing about efficiency because of the joint-hypothesis problem We can conclude both a. and b. are true
The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 2,1% over the coming month. Beta 1.4 Standard Deviation R- of Residuals square 0.65 0.1 (i.e., 10% monthly) Now suppose that the manager misestimates the beta of Waterworks stock, believing it to be 0.5 instead of 1.4. The standard deviation of the monthly market rate of return is 9%. If he holds a $5,000,000 portfolio of Waterworks stock. The S&P 500 currently is at 2,000 and the contract multiplier is $50. a. What is the standard deviation of the (now improperly) hedged portfolio? (Round your answer to 3 decimal places.) Standard deviation % b. What is the probability of incurring a loss on improperly hedged portfolio over the next month if the monthly market return has an expected value of 1% and a standard deviation of 9%? The manager holds a $5 million portfolio of Waterworks…
An analyst who believes in the Treynor Black Model has identified one active stock, stock A, which he/she wants to combine with the passive Market Index M to form their firm's optimal risky portfolio. A regression of the excess returns of stock A on the excess returns of the market index M, have discovered that stock A's alpha is 4%, its beta is 2.0, and the residual standard deviation of the error term for stock A is 18%. The standard deviation for the market index M is 14%, the expected return on M is 11%, the risk-free rate of return is 3%, and the expected return on stock A is 22%. What is the Sharpe Ratio for the optimal risky portfolio formed by the optimal combination of the active stock A with the passive market index M? Note that the Sharpe Ratio is usually expressed as a decimal.
Listed below is the return probability distribution associated with the stocks of XYZ Company and the market portfolio under different states of the economy: State Recession Normal Boom 0.00452 O 0.00552 0.00652 Probability O 0.00752 0.4 0.3 0.3 XYZ Return What is the covariance between XYZ return and Market return? -3% 14% 20% Market Return 2% 8% 16%
Based on the information in the yellow shaded areas: a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?
Suppose that during the coming year, the risk free rate, rRF, is expected to remain the same, while the market risk premium (rM − rRF), is expected to fall. Given this forecast, which of the following statements is CORRECT? a. The required return on all stocks will remain unchanged. b. The required return will fall for all stocks, but it will fall more for stocks with higher betas. c. The required return for all stocks will fall by the same amount. d. The required return will fall for all stocks, but it will fall less for stocks with higher betas. e. The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.

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